Momentum Trading, Return Chasing and Predictable Crashes

Chabot, Benjamin; Ghysels, Éric; Jagannathan, Ravi

doi:10.2139/ssrn.2516796

“…This dynamic strategy can easily be implemented because the momentum and contrarian positions are changed only after a market plunge is observed. The contrarian position is kept for three months because most of the momentum crashes happen in this window 9 . The dynamic momentum strategy cannot be improved further by switching to the contrarian position after a market jump.…”

Section: Dynamic Momentum Strategymentioning

confidence: 99%

“…I did not optimize this parameter on purpose to avoid the data mining issues. However, I consider other levels of trigger losses in the robustness sections 7.1 and 7.2, and I show that all significant loss triggers 'work' 9. Of course, other specifications of the dynamic momentum strategy with other switching periods and lengths of the contrarian position are possible.…”

mentioning

confidence: 95%

Avoiding momentum crashes: Dynamic momentum and contrarian trading

Dobrynskaya

¹

2019

Journal of International Financial Markets, Institutions and Mo

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High momentum returns cannot be explained by risk factors, but they are negatively skewed and subject to occasional severe crashes. I explore the timing of momentum crashes and show that momentum strategies tend to crash in 1-3 months after the local stock market plunge. Next, I propose a simple dynamic trading strategy which coincides with the standard momentum strategy in calm times, but switches to the opposite contrarian strategy after a market crash and keeps the contrarian position for three months, after which it reverts back to the momentum position. The dynamic momentum strategy turns all major momentum crashes into gains and yields an average return, which is about 1.5 times as high as the standard momentum return. The dynamic momentum returns are positively skewed and not exposed to risk factors, have high Sharpe ratio and alpha, persist in different time periods and geographical markets around the globe.

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“…For example, Bhojraj and Swaminathan (2006) highlight the potential overreaction to news about macroeconomic conditions. In addition, Cenedese et al (2016) link the momentum effect with the tendency of investors to increase their holdings in markets that have recently outperformed (Froot et al 1992;Bohn and Tesar 1996;Griffin et al 2004;Chabot et al 2014). Other studies offer some alternative explanations.…”

Section: Momentummentioning

confidence: 99%

The Cross Section of Country Equity Returns: A Review of Empirical Literature

Zaremba

¹

2019

JRFM

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The last three decades brought mounting evidence regarding the cross-sectional predictability of country equity returns. The studies not only documented country-level counterparts of well-established stock-level anomalies, such as size, value, or momentum, but also demonstrated some unique return-predicting signals such as fund flows or political regimes. Nonetheless, the different studies vary remarkably in terms of their dataset and methods employed. This study aims to provide a comprehensive review of the current literature on the cross-section of country equity returns. We focus on three particular aspects of the asset pricing literature. First, we study the choice of dataset and sample preparation methods. Second, we survey different aspects of the methodological approaches. Last but not least, we review the country-level equity anomalies discovered so far. The discussed cross-sectional return patterns not only provide new insights into international asset pricing but can also be potentially translated into effective country allocation strategies.

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“…This dynamic strategy can easily be implemented because the momentum and contrarian positions are changed only after a market plunge is observed. The contrarian position is kept for three months because most of the momentum crashes happen in this window 9 .…”

Section: Dynamic Momentum Strategymentioning

confidence: 99%

Dynamic Momentum and Contrarian Trading

Dobrynskaya

¹

2017

SSRN Journal

0

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High momentum returns cannot be explained by risk factors, but they are negatively skewed and subject to occasional severe crashes. I explore the timing of momentum crashes and show that momentum strategies tend to crash in 1-3 months after the local stock market plunge. Next, I propose a simple dynamic trading strategy which coincides with the standard momentum strategy in calm times, but switches to the opposite contrarian strategy after a market crash and keeps the contrarian position for three months, after which it reverts back to the momentum position. The dynamic momentum strategy turns all major momentum crashes into gains and yields an average return, which is about 1.5 times as high as the standard momentum return. The dynamic momentum returns are positively skewed and not exposed to risk factors, have high Sharpe ratio and alpha, persist in different time periods and geographical markets around the globe.

show abstract

Momentum Trading, Return Chasing and Predictable Crashes

Cited by 11 publications

References 46 publications

Avoiding momentum crashes: Dynamic momentum and contrarian trading

Avoiding momentum crashes: Dynamic momentum and contrarian trading

The Cross Section of Country Equity Returns: A Review of Empirical Literature

Dynamic Momentum and Contrarian Trading

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