Momentum and Downside Risk

Min, Byoung-Kyu; Kim, Tong Suk

doi:10.2139/ssrn.1570948

Cited by 6 publications

(7 citation statements)

References 43 publications

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“…Since the seminal work in Jegadeesh and Titman (1993), the tendency that stocks perform relatively well in the past continue to outperform in the intermediate horizon, the so called (cross-sectional) momentum, has drawn substantial interests from academia and practitioners alike (Carhart 1997;Cooper et al 2004;Nijman et al 2004;Sagi & Seasholes 2007;Min & Kim 2016). 2 Besides this well-established cross-sectional momentum, Moskowitz et al (2012) document a strong time-series momentum pattern that the past 12-month return predicts the subsequent one-month return, which prevails in a number of asset classes (Moskowitz et al 2012;Georgopoulou & Wang 2016).…”

Section: Introductionmentioning

confidence: 99%

Overnight momentum, informational shocks, and late informed trading in China

Gao

Han

et al. 2019

International Review of Financial Analysis

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Based on high-frequency firm-level data, this paper uncovers new empirical patterns on intraday momentum in China. First, there exists a strong intraday momentum effect at the firm level. Second, the intraday predictability stems mainly from the overnight component rather than the opening half-hour component, which is consistent with the microstructure features of the Chinese market. Third, the intraday predictability attenuates (strengthens) following large positive (negative) informational shocks, implying a striking asymmetric reaction by market participants. Finally, we document that late-informed traders are relatively less experienced or skilful. Overall, the empirical results lend support to the model of late-informed trading.

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Section: Introductionmentioning

confidence: 99%

Overnight momentum, informational shocks, and late informed trading in China

Gao

Han

et al. 2019

International Review of Financial Analysis

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“…The strategy performed quite well during severe market downturns of 1972–1973, 2000–2001 and 2007–2008. On the other hand, consistent with momentum crashes during market rebounds subsequent to downturns (Daniel and Moskowitz, 2016; Min and Kim, 2016), the strategy performed relatively poorly in years following market declines.…”

Section: Resultsmentioning

confidence: 75%

Gross profitability and momentum

Bhootra

2018

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Purpose The purpose of this paper is to examine the combined performance of momentum and a gross profitability-based strategy. The motivation stems from the strong performance of momentum on the short side and profitability on the long side, suggesting a potentially superior combined strategy. Gross profitability is also a measure of firm quality, so that another motivation is to contribute to a growing literature on factor-based investing that includes momentum and quality as potential factors. Design/methodology/approach The empirical approach employed in the paper is standard in the asset pricing literature. The firms are sorted into portfolios based on profitability and momentum, and the combined performance is studied through independent double sorting. Both value-weighted and equally weighted returns are reported in case of key empirical results. Findings The combined strategy results in superior performance. Specifically, the strategy produces results 2.75 greater than the momentum strategy, and about four times as high as the profitability strategy. The strategy also has much higher Sharpe ratio that improves further when combined with size and value strategies. Research limitations/implications The research has significant implications for academics and practitioners alike. A new investment strategy that has not been explored in the literature is presented. The superior performance of the strategy presents a challenge for the market efficiency, and would be of interest to academics and practitioners working in the area of investment management. Practical implications There has been a growing interest in multi-factor investing in recent years. The paper documents that superior performance is achieved by combining two of the popular factors, namely profitability and momentum. Originality/value The research is the first to study the combined performance of profitability and momentum, and provide evidence on the superiority of the combined strategy.

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“…Galsband (2012) and Alles and Murray (2017) observed stock returns to be sensitive to downside shocks in emerging markets. Additionally, Giglio et al (2016), Min and Kim (2016) and Ormos and Timotity (2016) proposed modeling the downside risk from the macroeconomic perspective, while Theodosiadou et al (2016) explored time sensitivity of jumps in individual stock returns. In view of Ang et al (2006), this paper examined whether individual UK stocks with higher downside betas earn, on average, higher returns during both the observation period and the next period, focusing particularly on time sensitivity of stock returns relative to the downside risk.…”

Section: Raf 181mentioning

confidence: 99%

“…As the regular, upside and downside betas are not independent, to distinguish their effects, two more statistics were introduced by Ang et al (2006) and further developed and tested in a number of studies, e.g. Galsband (2012), Liu et al (2014), Min and Kim (2016) and Keenan and Snow (2017): the relative upside beta, denoted by (b þ À b ) and the relative downside beta, denoted by (b À À b ). In the subsequent analysis, comparisons among regular, upside, downside, relative upside and relative downside betas relative to stock returns are summarized.…”

Section: A Model Of Downside Riskmentioning

confidence: 99%

The impact of downside risk on UK stock returns

Huang

2019

RAF

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Purpose This paper aims to investigate patterns in UK stock returns related to downside risk, with particular focus on stock returns during financial crises. Design/methodology/approach First, stocks are sorted into five quintile portfolios based on the relevant beta values (classic beta, downside beta and upside beta, calculated by the moving window approach). Second, patterns of portfolio returns are examined during various sub-periods. Finally, predictive powers of beta and downside beta are examined. Findings The downside risk is observed to have a significant positive impact on contemporaneous stock returns and a negative impact on future returns in general. In contrast, an inverse relationship between risk and return is observed when stocks are sorted by beta, contrary to the classic literature. UK stock returns exhibit clear time sensitivity, especially during financial crises. Originality/value This paper focuses on the impact of the downside risk on UK stock returns, assessed via a comprehensive sub-period analysis. This paper fills the gap in the existing literature, in which very few studies examine the time sensitivity in relation to the downside risk and the risk-return anomaly in the UK stock market using a long sample period.

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Momentum and Downside Risk

Cited by 6 publications

References 43 publications

Overnight momentum, informational shocks, and late informed trading in China

Overnight momentum, informational shocks, and late informed trading in China

Gross profitability and momentum

The impact of downside risk on UK stock returns

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