Momentum and the Cross-Section of Stock Volatility

Minyou Fan, Fearghal Kearney, Youwei Li and Jiadong Liu

No 2020/01, QBS Working Paper Series from Queen's University Belfast, Queen's Business School

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

JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2020
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https://www.econstor.eu/bitstream/10419/271232/1/qms-rp2020-01.pdf (application/pdf)

Related works:
Journal Article: Momentum and the Cross-section of Stock Volatility (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qmsrps:202001

DOI: 10.2139/ssrn.3541766

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