Understanding idiosyncratic momentum in the Chinese stock market

Qi Lin

Journal of International Financial Markets, Institutions and Money, 2022, vol. 76, issue C

Abstract: In this paper, we revisit the idiosyncratic momentum pattern in the Chinese stock market. We show that idiosyncratic momentum strategies constructed to hedge out the risk exposures to eight popular multifactor models remain profitable. Importantly, a PLS-based idiosyncratic momentum strategy that aggregates the information contained in various idiosyncratic momentum measures consistently produces substantial profits in the cross-sectional pricing at the portfolio and individual stock levels. Furthermore, the PLS-based idiosyncratic momentum factor is helpful in explaining the cross-section of expected returns and can be rationalized in the context of Merton’s (1973) intertemporal CAPM (ICAPM) theory.

Keywords: Idiosyncratic momentum; PLS estimation; Asset pricing; Intertemporal CAPM; Chinese market (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:76:y:2022:i:c:s104244312100175x

DOI: 10.1016/j.intfin.2021.101469

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