The Continent’s hot: And we’re not just talking weather. Yes, temperatures are sky-high in several regions across Europe. Sicily stands out by setting a new record high for Europe this week — a fiery 119.8 degrees Fahrenheit.
Decomposing Momentum: Eliminating its Crash Component
Pascal Büsing (University of Muenster), et al.
July 15, 2021
We propose a purely cross-sectional momentum strategy that avoids crash risk and does not depend on the state of the market. To do so, we simply split up the standard momentum return over months t-12 to t-2 at the highest stock price within this formation period. Both resulting momentum return components predict subsequent returns on a stand-alone basis. However, the long-short returns associated with the first component completely avoid negative skewness since momentum crashes are entirely driven by the second component.
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