Victoria Dobrynskaya, the School of Finance Assistant Professor, Published the Article in “Quarterly Journal of Finance”

The School of Finance assistant professor Victoria Dobrynskaya have published the article “Does Momentum Trading Generate Extra Downside Risk?”, which was published in the“Quarterly Journal of Finance” on December 29^th.

 

Abstract:

Momentum strategies tend to provide low returns during market crashes, and they crash themselves when the market rebounds after significant crashes. This is reflected by positive downside market betas and negative upside market betas of zero-cost momentum portfolios. Such asymmetry in upside and downside risks is unfavorable for investors and requires a risk premium. It arises mechanically because of momentum portfolio rebalancing based on trailing asset performance. The asymmetry in upside and downside risks is a robust unifying feature of momentum portfolios in various geographical and asset markets. The momentum premium can be rationalized within a standard asset-pricing framework, where upside and downside risks are priced differently.