The Idiosyncratic Momentum AnomalyVW Staff
Our revisits the idiosyncratic return momentum effect of Gutierrez and Pirinsky (2007) and Blitz et al. (2011). Idiosyncratic momentum is calculated based on the stock -specific (idiosyncratic) returns, e.g. the returns orthogonal to the three factors that explain a major part of the variation in average returns - the market, size, and value factors.
We conclude that idiosyncratic momentum presents an even bigger challenge to the asset pricing literature, and that the underreaction explanation for the premium seems more likely than the various risk-based and behavioral explanations that have been proposed for conventional momentum.
Our contribution to the literature . . .
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