The momentum risk factor will see crashes. This is a well-known fact. After a significant market decline, there is a high risk that those names that are held short will outperform, generate higher gains than the long positions. That is, there will be negative returns from holding shorts as they move quickly higher on a market rebound. It is also found that the crash risk is predictable and can be reduced through dynamic risk management.
Another interesting feature with momentum is that those stocks that are far away from their 52-week highs are more likely to suffer from crash risk. See "Momentum Crashes and the 52-week High". The distance away from 52-week highs can be a key tool for reducing momentum risk given this inverse relationship. This condition seems to be associated with market sentiment. There are simple ways to improve the momentum factors return profile.
No comments:
Post a Comment