Return volatility, skewness, and momentum effects

This study identifies nonlinear patterns of momentum profits across stocks with different levels of return volatility and skewness. It finds that momentum profits are the largest from mildly volatile and skewed stocks; this phenomenon is consistently observed for different formation/holding periods, types of examined returns, and momentum grouping. Based on the patterns, this chapter proposes a sample filtering criterion for momentum investment; the profits accrued through the sample filtering are economically enlarged. Such an enhancement of momentum profits by the filtering process is documented in various strategies, including the conventional, 52-week high, and risk-managed momentum strategies.