Idiosyncratic Momentum: U.S. and International Evidence

Abstract

This article explores an alternative definition of momentum that is calculated using the idiosyncratic returns from market regressions. By removing the return component due to market beta exposure, this new definition of momentum reduces the volatility of momentum strategies and generates sizeable alphas, even after controlling for traditional momentum. The results are confirmed in a sample of 21 countries, in addition to U.S. data. Most interestingly, the findings also hold in Japan, where previous studies have failed to find any significant power for traditional momentum strategies.

TOPICS: Analysis of individual factors/risk premia, developed