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Momentum profits and idiosyncratic volatility: the Korean evidence

Unyong (Howard) Pyo (Faculty of Business, Brock University, St Catharines, Canada)
Yong Jae Shin (Department of Business Administration, Soongeui Women's College, Seoul, South Korea)

Review of Accounting and Finance

ISSN: 1475-7702

Article publication date: 9 May 2013




This study aims to focus on the profitability of momentum trading in the Korean stock market. More specifically, it aims to conduct an examination of the relationship between momentum returns and idiosyncratic volatility (IVol) to determine whether momentum profits can be explained by IVol.


Portfolios are formed based on their past performance and examine the momentum, or contrarian returns, as the difference between winning and losing portfolios. To confirm that the momentum strategy provides excess returns, the relationship between momentum returns and IVol is studied. The Fama and French three‐factor model is also examined to see whether systematic risk affects momentum profits. Firm size, stock price, and turnover are controlled to determine robustness. Finally, a time‐series relationship between aggregate IVol and momentum profits is investigated.


The paper illustrates that excess returns are obtained from a momentum strategy, not a contrarian strategy, in the Korean stock market. Momentum returns are higher among high IVol stocks, especially high IVol winners. Examining the Fama and French three‐factor model, it is found that momentum returns cannot be explained by systematic risk. The findings are robust after controlling for factors such as firm size, book‐to‐market ratio, and turnover. The paper confirms the effect of IVol on momentum returns by illustrating that a time‐series relationship between momentum returns and aggregate IVol is positive.


This paper is among the first, to the authors' knowledge, to examine the relationship between momentum profits and IVol in the Korean stock market, one of the mature financial markets. The findings in this study can be applied to better understand the sources of gains from the momentum strategy in international stock markets.



Pyo, U.(H). and Jae Shin, Y. (2013), "Momentum profits and idiosyncratic volatility: the Korean evidence", Review of Accounting and Finance, Vol. 12 No. 2, pp. 180-200.



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Copyright © 2013, Emerald Group Publishing Limited

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