Momentum and the Cross-section of Stock Volatility

Minyou Fan, Fearghal Kearney, Youwei Li and Jiadong Liu

Journal of Economic Dynamics and Control, 2022, vol. 144, issue C

Abstract: Recent literature shows that momentum strategies exhibit significant downside risks over certain periods, called “momentum crashes”. We find that high uncertainty of momentum strategy returns is sourced from the cross-sectional volatility of individual stocks. Stocks with high realised volatility over the formation period tend to lose momentum effect. We propose a new approach, generalised risk-adjusted momentum (GRJMOM), to mitigate the negative impact of high momentum-specific risks. GRJMOM is proven to be more profitable and less risky than existing momentum ranking approaches across multiple asset classes, including the UK stock, commodity, global equity index, and fixed income markets.

Keywords: Cross-sectional momentum; Momentum crashes; Generalised risk-adjusted momentum; Excess volatility; Volatility timing (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (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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Related works:
Working Paper: Momentum and the Cross-Section of Stock Volatility (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:144:y:2022:i:c:s0165188922002287

DOI: 10.1016/j.jedc.2022.104524

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