Momentum, Origin of Specific Volatility
Subject Areas : Financial Knowledge of Securities Analysis
Maryam
Davalo
1
(Assistant Professor, faculty member of Shahid Beheshti University)
Keywords: Asset Pricing, (firm) specific volatility, Momentum,
Abstract :
Current paper is aimed to investigate origin of expected return explanation by volatility of specific volatility through momentum strategy return. In other words, one of the explanations presented for profitability of investment strategy based on specific volatility is tested in this paper that is founded by investors' under-reaction to firm specific information and ultimately momentum appearance. So the relation between momentum and specific volatility of CAPM and Fama-French three factor model is tested using portfolio study approach and Fama-Macbeth regression.This research that is performed in sample composed of 130 listed firms in Tehran Stock Exchange, shows return of investment strategy based on specific volatility is higher for stocks having high momentum. If momentum effect is included, explanatory power of the specific volatility is not omitted. So it cannot be claimed that the origin of relation between model specific volatility and expected return is momentum
