Are momentum profits influenced by idiosyncratic volatility? Evidence from India

Abstract

In this paper, we examine the presence of a possible relationship between momentum returns and idiosyncratic volatility. We also verify if price momentum is influenced by idiosyncratic volatility. The results show that idiosyncratic volatility (IV) and momentum returns on stocks are positively related. We also find from the empirical results that IV has a significant impact on momentum effect of both short-term as well as long-term trading strategies as the resulting alphas are non-zeros and statistically significant. The results of the study could be a highly rational source of information to different classes of investors.

Keywords

• Stock returns
• Idiosyncratic volatility
• Fama-French
• Momentum effect