@Article{mfj:1820,
title={Barra Risk Model Based Idiosyncratic Momentum for Chinese Equity Market},
author={Sean Lu and Cindy Lu},
journal={Multinational Finance Journal},
volume={},
number={},
pages={--},
year=,
publisher={Multinational Finance Society; Global Business Publications},
url={http://www.mfsociety.org/}
keywords={},
abstract={We propose a new way of constructing an idiosyncratic momentum factor using the common style factors from the Barra risk model. Our method removes the limitation in the conventional approach of constructing idiosyncratic momentum using Fama-French model factors, and allows us to build an effective idiosyncratic momentum factor for a wide variety of international markets, particularly emerging markets, where the Fama-French model is not available. Also, we examine the properties and the performance of this new factor by applying it to China's stock market. Our analysis shows that the idiosyncratic momentum factor constructed here carries an resemblance to the conventional price momentum factor, but with much lower variance and exposure to the common market factors, such as value, size, and volatility. In the long-short portfolio test for both China's A-Share IMI and CSI 500 indices, we observe the significant improvement of this factor's return over the conventional momentum. The performance results strongly suggest that, compared with the traditional momentum, the idiosyncratic momentum factor is more reliable and possesses higher predictive power for future stock returns. This factor is a good candidate to replace the traditional price momentum factor when developing an effective momentum strategy for investing in China's stock market..},
}