Momentum profits and time-varying unsystematic risk

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Accepted Version
Date
2008-04
Authors
Li, Xiafei
Miffre, Joƫlle
Brooks, Chris
O'Sullivan, Niall
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Elsevier
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Abstract
This study assesses whether the widely documented momentum profits can be attributed to time-varying risk as described by a GJR-GARCH(1,1)-M model. We reveal that momentum profits are a compensation for time-varying unsystematic risks, which are common to the winner and loser stocks but affect the former more than the latter. In addition, we find that, perhaps because losers have a higher propensity than winners to disclose bad news, negative return shocks increase their volatility more than they increase those of the winners. The volatility of the losers is also found to respond to news more slowly, but eventually to a greater extent, than that of the winners.
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Keywords
Momentum profits , Unsystematic risk , GJR-GARCH(1,1)-M model
Citation
LI, X., MIFFRE, J., BROOKS, C. & Oā€™SULLIVAN, N. 2008. Momentum profits and time-varying unsystematic risk. Journal of Banking & Finance, 32, 541-558. doi: http://dx.doi.org/10.1016/j.jbankfin.2007.03.014
Copyright
Copyright Ā© 2007 Elsevier B.V. All rights reserved. NOTICE: this is the authorā€™s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance [Volume 32, Issue 4, April 2008, Pages 541ā€“558] http://dx.doi.org/10.1016/j.jbankfin.2007.03.014