Implication of Momentum Crash in Covid-19

Abstract

This article seeks to investigate momentum strategy from January 2001 to June 2021 and establishes three types of consequences of momentum collapse triggered by covid-19. I demonstrate the validity of three types of implication, which are narrowing the window of positive return for momentum strategies, widening the average return gap between past winners and losers, and diminishing profit in the WML portfolio (winner minus loser) over time. Finally, I do further research in both the covid-19 and normal periods, and find that past winners and losers are more vulnerable to momentum crashes, as evidenced by a big reversal of return.