Cross-momentum: Tracking idiosyncratic shocks

Abalfazl Zareei

International Review of Economics & Finance, 2021, vol. 71, issue C, 177-199

Abstract: In the presence of slow diffusion of information, the transmission of idiosyncratic shocks through economically linked firms leaves footprints in the prices. In this paper, we estimate the links between firms using past prices and predict the average shock exerted to each firm in the entire cross-section. The long-short cross-momentum portfolio constructed based on average shocks yields significant alphas and performs well in explaining variation in returns.

Keywords: Idiosyncratic shock propagation; Linked firms; Information diffusion (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:71:y:2021:i:c:p:177-199

DOI: 10.1016/j.iref.2020.05.015

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