Momentum Crashes

31 Pages Posted: 22 Aug 2011

See all articles by Kent D. Daniel

Kent D. Daniel

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

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Date Written: April 12, 2011

Abstract

Momentum strategies have produced high returns and Sharpe ratios, and strong positive alphas relative to market models and other standard factors models. However, the returns to momentum strategies are highly skewed; they experience infrequent but strong and persistent strings of negative returns. These momentum \crashes" are forecastable: they occur following market declines, when market volatility is high, and contemporaneous with market \rebounds." The low ex-ante expected returns associated with the crashes appear to result from a a conditionally high premium attached to the the option-like payo s of the past-loser portfolios.

Suggested Citation

Daniel, Kent D., Momentum Crashes (April 12, 2011). Columbia Business School Research Paper No. 11-03, Available at SSRN: https://ssrn.com/abstract=1914673 or http://dx.doi.org/10.2139/ssrn.1914673

Kent D. Daniel (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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