Does Momentum Trading Generate Extra Downside Risk?

40 Pages Posted: 22 Feb 2014 Last revised: 22 Nov 2021

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2020


Momentum strategies tend to provide low returns during market crashes, and they crash themselves when the market rebounds after significant crashes. This is reflected by positive downside market betas and negative upside market betas of zero-cost momentum portfolios. Such asymmetry in upside and downside risks is unfavorable for investors and requires a risk premium. It arises mechanically because of momentum portfolio rebalancing based on trailing asset performance. The asymmetry in upside and downside risks is a robust unifying feature of momentum portfolios in various geographical and asset markets. The momentum premium can be rationalized within a standard asset-pricing framework, where upside and downside risks are priced differently.

Keywords: momentum premium, momentum crashes, downside risk, downside beta, upside risk, upside beta, Downside-Risk CAPM

JEL Classification: G12, G14, G15

Suggested Citation

Dobrynskaya, Victoria, Does Momentum Trading Generate Extra Downside Risk? (June 29, 2020). Available at SSRN: or

Victoria Dobrynskaya (Contact Author)

School of Finance, HSE University ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics