Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269983 
Year of Publication: 
2020
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 8 [Issue:] 1 [Article No.:] 1824362 [Year:] 2020 [Pages:] 1-19
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
Portfolios in idiosyncratic momentum are formed on past residuals of the Fama-French three factor model rather than past total returns. This study examines whether the idiosyncratic momentum strategy can sustain excess returns following the emergence of traded options. We compare idiosyncratic momentum returns with traditional momentum returns over different holding periods and over difference in traded options. Our results show that idiosyncratic momentum returns for stocks with options are positive for three, six, and twelve months following the formation date, while traditional momentum returns for those with options are insignificant or even turn to negative. We also find strong evidence that the enhanced information efficiency led by short selling has impacts more on traditional momentum than on idiosyncratic momentum. While traditional momentum disappears on stocks with traded options, idiosyncratic momentum survives and is still anomalous to the efficient market hypothesis.
Subjects: 
idiosyncratic momentum
short sale constraints
stock option trading
traditional momentum
JEL: 
G14
G40
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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