Each month, idiosyncratic momentum estimates the model over the past 36-month window for all stocks in the investment universe. Next the idiosyncratic retuns are calculated. Finally, the idiosyncratic momentum score is the last twelve 2-month volatility mean idiosyncratic return.
In addition to considering price and return, idiosyncratic momentum takes into account the market, size and value factors.
We applied the aforementioned idiosyncratic momentum metrics to a universe of the largest 500 US equities by market capitalization and ranked each stock on its idiosyncratic momentum factor. We then divided the universe into 10 quantiles of stocks, with the top quantile (Q_10) representing stocks with the highest value of that factor and the bottom quantile (Q_1) representing the lowest value of that factor.
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