Abstract
We explain why momentum strategy crashes. When the market rebounds, demand on stocks far from peaks motivated from anchoring bias increases as speculators flow into the market, which results in their price run-up. Momentum crashes are just a manifestation of such phenomenon. Consistent with our hypothesis, during the market rebound, stocks far from peaks outperform stocks near peaks and momentum measure loses its negative predictive power once the nearness to price peaks is taken into account. Furthermore, we find that a revised momentum strategy that is neutral on nearness to 52-week high is free of crashes without sacrificing its profitability.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
