Does idiosyncratic risk derive price momentum and long term reversal :evidence from the Johannesburg Stock Exchange
This study examines if the idiosyncratic risk is the main source behind the persistence of price momentum and reversal effects. Idiosyncratic risk limits arbitrage, regardless of the arbitrageur’s diversification. Price momentum is prevalent only in high idiosyncratic risk stocks, highlighting that idiosyncratic risk limits arbitrage in price momentum mispricing. Long-term reversal is not related to idiosyncratic risk. Long term reversal stocks generates a smaller aggregate return than price momentum stocks, so the findings along with those in related studies suggest that underreaction and overreaction might be the main driving force behind long term reversal returns. The findings of this study are consistent with some of South African literature which suggest that momentum is a more persistent investing strategy than long term reversal on the Johannesburg Stock Exchange (JSE).
A research report presented in partial fulfilment (50%) of the requirements for the degree of Master of Commerce in Business Economics (Finance), September 2019
Mashayanyika, Rich (2019) Does idiosyncratic risk derive price momentum and long term reversal:evidence from the Johannesburg Stock Exchange, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/29658>