Work

Firm-specific versus systematic momentum

Year: 2025

Type: article

Abstract: • We decompose stock returns into a systematic and a firm-specific component. • The dynamics of the firm-specific return component drives stock momentum. • Results contradict the transmission mechanism from factor to stock momentum proposed in prior research. We decompose stock returns into a systematic and a firm-specific component and show that the dynamics of the firm-specific return component drives the well-known stock momentum anomaly. Our results are robust to the use of a variety of prominent factor models for return decomposition. Furthermore, we find that momentum profits are largely unaffected when the investment universe is restricted to stocks with inconspicuous factor loadings. Our empirical findings call into question the transmission mechanism from factor momentum to stock momentum proposed in recent research.

Source: Finance research letters

DOI: 10.1016/j.frl.2025.106963

Authors: Frank Graef, Daniel Hoechle, Markus Schmid

Institutions: FHNW University of Applied Sciences and Arts Northwestern Switzerland, University of St.Gallen, European Corporate Governance Institute, Swiss Finance Institute

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,730

Funder: Swiss Finance Institute