Momentum and Crash Sensitivity
13 Pages Posted: 28 Dec 2017 Last revised: 8 Feb 2018
Date Written: December 23, 2017
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: Suggested Citation