Momentum Crashes / Kent Daniel, Tobias J. Moskowitz.

Format:

Book

Author/Creator:

Daniel, Kent.

Contributor:

National Bureau of Economic Research.

Moskowitz, Tobias J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20439.

NBER working paper series no. w20439

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

Despite their strong positive average returns across numerous asset classes, momentum strategies can experience infrequent and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in "panic" states - following market declines and when market volatility is high - and are contemporaneous with market rebounds. We show that the low ex-ante expected returns in panic states are consistent with a conditionally high premium attached to the option-like payoffs of past losers. An implementable dynamic momentum strategy based on forecasts of momentum's mean and variance approximately doubles the alpha and Sharpe Ratio of a static momentum strategy, and is not explained by other factors. These results are robust across multiple time periods, international equity markets, and other asset classes.

Notes:

Print version record

August 2014.