Factor momentum, option-implied volatility scaling, and investor sentiment

Abstract Factor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short overpriced stocks. Conversely, loser-factors’ negative exposure to PEAD suggests loser capture mispricing by Option-implied volatility scaling increases both statistical significance of is not exposed same crashes therefore could provide hedge for crash risks. Also, more pronounced when investor sentiment high.