Maximum Drawdown, Recovery, and Momentum

We empirically test predictability on asset price using stock selection rules based on maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- and weekly contrarian-style portfolios constructed from these alternative selection criteria are superior not only in for...

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Autor principal:	Jaehyung Choi
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	momentum mean-reversion maximum drawdown recovery alternative stock selection rules Risk in industry. Risk management HD61 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/0b95c468ba4c49ab8f861fd695b32a90
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spelling	oai:doaj.org-article:0b95c468ba4c49ab8f861fd695b32a902021-11-25T18:08:40ZMaximum Drawdown, Recovery, and Momentum10.3390/jrfm141105421911-80741911-8066https://doaj.org/article/0b95c468ba4c49ab8f861fd695b32a902021-11-01T00:00:00Zhttps://www.mdpi.com/1911-8074/14/11/542https://doaj.org/toc/1911-8066https://doaj.org/toc/1911-8074We empirically test predictability on asset price using stock selection rules based on maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- and weekly contrarian-style portfolios constructed from these alternative selection criteria are superior not only in forecasting directions of asset prices but also in capturing cross-sectional return differentials. In monthly periods, the alternative portfolios ranked by maximum drawdown measures exhibit outperformance over other alternative momentum portfolios including traditional cumulative return-based momentum portfolios. In weekly time scales, recovery-related stock selection rules are the best ranking criteria for detecting mean-reversion. For the alternative portfolios and their ranking baskets, improved risk profiles in various reward-risk measures also imply more consistent prediction on the direction of assets in future. Moreover, turnover rates of these momentum/contrarian portfolios are also reduced with respect to the benchmark portfolios. In the Carhart four-factor analysis, higher factor-neutral intercepts for the alternative strategies are another evidence for the robust prediction by the alternative stock selection rules.Jaehyung ChoiMDPI AGarticlemomentummean-reversionmaximum drawdownrecoveryalternative stock selection rulesRisk in industry. Risk managementHD61FinanceHG1-9999ENJournal of Risk and Financial Management, Vol 14, Iss 542, p 542 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	momentum mean-reversion maximum drawdown recovery alternative stock selection rules Risk in industry. Risk management HD61 Finance HG1-9999
spellingShingle	momentum mean-reversion maximum drawdown recovery alternative stock selection rules Risk in industry. Risk management HD61 Finance HG1-9999 Jaehyung Choi Maximum Drawdown, Recovery, and Momentum
description	We empirically test predictability on asset price using stock selection rules based on maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- and weekly contrarian-style portfolios constructed from these alternative selection criteria are superior not only in forecasting directions of asset prices but also in capturing cross-sectional return differentials. In monthly periods, the alternative portfolios ranked by maximum drawdown measures exhibit outperformance over other alternative momentum portfolios including traditional cumulative return-based momentum portfolios. In weekly time scales, recovery-related stock selection rules are the best ranking criteria for detecting mean-reversion. For the alternative portfolios and their ranking baskets, improved risk profiles in various reward-risk measures also imply more consistent prediction on the direction of assets in future. Moreover, turnover rates of these momentum/contrarian portfolios are also reduced with respect to the benchmark portfolios. In the Carhart four-factor analysis, higher factor-neutral intercepts for the alternative strategies are another evidence for the robust prediction by the alternative stock selection rules.
format	article
author	Jaehyung Choi
author_facet	Jaehyung Choi
author_sort	Jaehyung Choi
title	Maximum Drawdown, Recovery, and Momentum
title_short	Maximum Drawdown, Recovery, and Momentum
title_full	Maximum Drawdown, Recovery, and Momentum
title_fullStr	Maximum Drawdown, Recovery, and Momentum
title_full_unstemmed	Maximum Drawdown, Recovery, and Momentum
title_sort	maximum drawdown, recovery, and momentum
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/0b95c468ba4c49ab8f861fd695b32a90
work_keys_str_mv	AT jaehyungchoi maximumdrawdownrecoveryandmomentum
_version_	1718411541898854400

Maximum Drawdown, Recovery, and Momentum

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