Momentum Profits and Time-Varying Unsystematic Risk

29 Pages Posted: 1 Sep 2006 Last revised: 10 Nov 2015

See all articles by Xiafei Li

Xiafei Li

Keele Business School, Keele University; Keele Business School, Keele University

Joëlle Miffre

Audencia Business School

Chris Brooks

University of Bristol - School of Economics, Finance and Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2007

Abstract

This study assesses whether the widely documented momentum profits can be ascribed to time-varying risk as described by a GJR-GARCH(1,1)-M model. Consistent with rational pricing in efficient markets, we reveal that momentum profits are a compensation for time-varying unsystematic risks, common to the winner and loser stocks. We also find that, because losers have a higher propensity than winners of disclose bad news, negative return shocks increase their volatility more than it increases that 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. Following Hong et al. (2000), we interpret this as a sign that managers of loser firms are reluctant to disclosing bad news, while managers of winner firms are eager to releasing good news.

Keywords: Momentum profits, Common unsystematic risk, GJR-GARCH(1,1)-M

JEL Classification: G12, G14

Suggested Citation

Li, Xiafei and Miffre, Joelle and Brooks, Chris, Momentum Profits and Time-Varying Unsystematic Risk (February 26, 2007). Journal of Banking and Finance, Vol. 32, No. 4, 2008, Available at SSRN: https://ssrn.com/abstract=927772 or http://dx.doi.org/10.2139/ssrn.927772

Xiafei Li

Keele Business School, Keele University ( email )

NG5 5AA
United Kingdom

Keele Business School, Keele University ( email )

Keele, ST5 5AA
United Kingdom

Joelle Miffre (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Chris Brooks

University of Bristol - School of Economics, Finance and Management ( email )

School of Accounting and Finance
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
267
Abstract Views
1,881
Rank
129,687
PlumX Metrics