Work

Excess returns on idiosyncratic profitability: Evidence from a hedge portfolio strategy

Year: 2026

Type: article

Abstract: This study investigates the influence of firm-idiosyncratic profitability on stock pricing decisions and whether a trading strategy based on idiosyncratic profitability can generate significant hedge portfolio abnormal returns. We disaggregate a firm’s profitability into three components—a market component, an industry component, and a firm-specific component, which we label as idiosyncratic profitability. We document that a trading strategy based on idiosyncratic profitability generates significant hedge portfolio returns. Our results are robust in that our hedge portfolio returns still exist after controlling for known risk factors and previously documented anomalies. JEL Classifications: C58; G11; G14; M20; M41

Source: Australian Journal of Management

DOI: 10.1177/03128962261425895

Authors: Miaodi Han, Andrew B Jackson, Gary S Monroe

Institutions: The University of Queensland, UNSW Sydney

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: $3,900

Funder: Australian Research Council