Kent Daniel, Columbia Business School
Historically, momentum strategies have been shown to be profitable across numerous asset classes, and are now a standard tool of quantitative asset managers. However, while momentum strategies have prolonged periods of strong consistent profitability, they also can show striking reversals. For example, March-May of 2009, as the financial crisis abated, a US equity momentum strategy suffered losses of 150%, the most severe loss to this strategy since 1933. We characterize the time variation in the risk and expected return associated with equity momentum strategies.
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