Momentum: Persistence in Financial Crises

This article investigates the performance of the zero investment strategy in stock momentum under different market states, and in times of economic distress. The findings suggest that momentum investment strategy performs positive in “up” markets and positive but with even higher returns in “down” markets, this is due to the fact that the portfolio of “losers” perform much worse in the “down” market compared to the negative outcome of the “winners” portfolio. Moreover, inline with expectations the performance of these portfolios is highly vulnerable to economic distress, based on a research including the major crisis events in the last forty years. Furthermore, we conclude that the performance of momentum investment strategy heavily depends on the categorization of the market, namely short reversals in the market are beneficial for the investment, while long reversal destroy its value.