Idiosyncratic volatility and momentum: the performance of Australian equity pension funds

We investigate the importance of idiosyncratic volatility for pricing of equity funds by using a comprehensive dataset of Australian retail equity pension funds from January 1995 to December 2008. We find strong evidence to support that idiosyncratic volatility is a significant pricing factor for returns of the equity funds implying that investors should consider idiosyncratic volatility when evaluating the performance of funds. We also find strong evidence to support that idiosyncratic volatility is strongly associated with momentum effect of Australian equity pension funds as equity pension funds with high idiosyncratic volatilities exhibit a high momentum effect.