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The asymmetric effects of industry specific volatility in momentum returns
Author(s) -
Badreddine Sina,
Clark Ephraim
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2130
Subject(s) - volatility (finance) , economics , econometrics , financial economics , volatility swap , volatility risk premium , volatility smile , forward volatility , monetary economics , implied volatility
In this paper, we look specifically at the effect of industry volatility on momentum returns, a phenomenon that has been overlooked in previous studies. We find that industry volatility has asymmetric effects on the winner and loser portfolios. The cross‐sectional variation in the returns of high and low‐volatility winners is driven primarily by industry volatility. It disappears after controlling for the effect of industry volatility on total firm volatility. However, for firms in the loser portfolios, the differential return between high and low volatile stocks remains even after adjusting for industry volatility. This implies that momentum returns are mainly induced by industry specific news at the winners' level and firm‐specific factors at the losers' level. The results are robust even after controlling for different levels of liquidity.