FRIC/Finance Seminar with Kent Daniel, Graduate School of Business, University of Columbia

Upcoming Finance Seminar with Kent Daniel, Graduate School of Business, University of Columbia

Title: Momentum Crashes

Abstract: Across numerous asset classes, momentum strategies have produced high returns, high Sharpe ratios, and strong positive alphas relative standard asset pricing models. However, the returns to momentum strategies are skewed: they experience infrequent but strong and persistent strings of negative returns. These momentum “crashes” are forecastable: they occur following market declines, when market volatility is high, and contemporaneous with market “rebounds”. The data suggest that low ex-ante expected returns in crash periods result from a conditionally high premium attached to the option-like payoffs of the past-loser portfolios.