Upside and Downside Risks in Momentum Returns

67 Pages Posted: 22 Feb 2014 Last revised: 25 Jun 2017

See all articles by Victoria Dobrynskaya

Victoria Dobrynskaya

National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017


I provide a novel risk-based explanation for the profitability of momentum strategies. I show that past winners and past losers are differently exposed to the upside and downside market risks. Winners systematically have higher relative downside betas and lower relative upside betas than losers. As a result, the winner-minus-loser momentum portfolios are exposed to extra downside risk, but hedge against the upside risk. Such asymmetry in risks is a mechanical consequence of rebalancing momentum portfolios, but it is unattractive for investors and requires a premium. The downside risk alone is not sufficient to explain momentum returns, but together with the upside risk, they constitute a robust unifying explanation of momentum returns in various geographical and asset markets. Momentum is not an anomaly anymore.

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

JEL Classification: G12, G14, G15

Suggested Citation

Dobrynskaya, Victoria, Upside and Downside Risks in Momentum Returns (March 2017). Available at SSRN: or

Victoria Dobrynskaya (Contact Author)

National Research University Higher School of Economics ( email )

26, Shabolovka st.
Moscow, 119017


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