Firm-specific versus systematic momentum

Abstract

We decompose stock returns into a systematic and a firm-specific component and show that the dynamics of the firm-specific return component drive the well-known stock momentum anomaly. Our results are robust to the use of a variety of prominent factor models for return decomposition. Furthermore, we find that momentum profits are largely unaffected when the investment universe is restricted to stocks with inconspicuous factor loadings. Our empirical findings call into question the transmission mechanism from factor momentum to stock momentum proposed in recent research.