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Momentum and Crash Sensitivity

University of St.Gallen, School of Finance Research Paper No. 2018/1

Economics Letters, Forthcoming

13 Pages Posted: 28 Dec 2017 Last revised: 8 Feb 2018

See all articles by Stefan Ruenzi

Stefan Ruenzi

University of Mannheim - Department of International Finance

Florian Weigert

University of Neuchatel - Institute of Financial Analysis; University of Cologne - Centre for Financial Research (CFR)

Date Written: December 23, 2017

Abstract

This paper proposes a risk-based explanation of the momentum anomaly on equity markets. Regressing the momentum strategy return on the return of a self-financing portfolio going long (short) in stocks with high (low) crash sensitivity in the USA from 1963 to 2012 reduces the momentum effect from a highly statistically significant 11.94% to an insignificant 1.84%. We find additional supportive out-of sample evidence for our risk-based momentum explanation in a sample of 23 international equity markets.

Keywords: Asset pricing, asymmetric dependence, copulas, crash sensitivity, momentum, tail risk

JEL Classification: C12, G01, G11, G12, G17

Suggested Citation

Ruenzi, Stefan and Weigert, Florian, Momentum and Crash Sensitivity (December 23, 2017). University of St.Gallen, School of Finance Research Paper No. 2018/1, Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3092546 or http://dx.doi.org/10.2139/ssrn.3092546

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

Florian Weigert (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel,7
Neuchatel, CH-2000
Switzerland

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

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