Price Momentum and Idiosyncratic Volatility

doi:10.1111/j.1540-6288.2008.00190.x

If you are seeing this message, you may be experiencing temporary network problems. Please wait a few minutes and refresh the page. If the problem persists, you may wish to report it to your local Network Manager.

It is also possible that your web browser is not configured or not able to display style sheets. In this case, although the visual presentation will be degraded, the site should continue to be functional. We recommend using the latest version of Microsoft or Mozilla web browser to help minimise these problems.

Wiley InterScience

Financial Review

Volume 43 Issue 2, Pages 159 - 190

Published Online: 31 Mar 2008

Published on behalf of the Eastern Finance Association

Go to Society Site

Next Abstract >

Save Article to My Profile Download Citation Request Permissions

Abstract | References | Full Text: HTML, PDF (Size: 176K) | Related Articles | Citation Tracking

Price Momentum and Idiosyncratic Volatility

Matteo P. Arena ¹ K. Stephen Haggard ² Xuemin (Sterling) Yan ³*

¹ Marquette University
² Missouri State University
³ University of Missouri – Columbia

* Corresponding author: Department of Finance, 427 Cornell Hall, University of Missouri, Columbia, MO 65211-2600; Phone: +(573) 884-9708; Fax: +(573) 884-6296; E-mail: YanX@Missouri.edu

We thank Arnold Cowan, Paul Brockman, John Howe, Cyndi McDonald, Sandra Mortal, Richard Roll, Doug Witte, two anonymous referees, an anonymous Associate Editor and seminar participants at the University of Missouri – Columbia, the 2005 European meeting of the FMA, and the 2005 FMA annual meeting for valuable comments. We thank I/B/E/S for providing analyst coverage data.

KEYWORDS

price momentum • idiosyncratic volatility • limits of arbitrage

KEYWORDS

G12 • G14

ABSTRACT

We find that returns to momentum investing are higher among high idiosyncratic volatility (IVol) stocks, especially high IVol losers. Higher IVol stocks also experience quicker and larger reversals. The findings are consistent with momentum profits being attributable to underreaction to firm-specific information and with IVol limiting arbitrage of the momentum effect. We also find a positive time-series relation between momentum returns and aggregate IVol. Given the long-term rise in IVol, this result helps explain the persistence of momentum profits since Jegadeesh and Titman's (1993) study.

DIGITAL OBJECT IDENTIFIER (DOI)

10.1111/j.1540-6288.2008.00190.x About DOI