Are momentum crashes pervasive regardless of strategy? Evidence from the foreign exchange market

ABSTRACT

This article studies the option-like behaviour of popular momentum strategies implemented in foreign exchange markets. The results confirm recent research findings of strong option-like behaviour for momenutm measures, based on the cumulative return from 12 and 6 months prior to the formation date Surprisingly, there is no such evidence for the popular momentum strategy accounting for a 1-month formation period.

KEYWORDS:

• Asset pricing
• international financial markets
• momentum crash
• foreign exchange markets
• currency markets

JEL CLASSIFICATION:

• G12
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Downloaded from the data library of the Journal of Financial Economics, see http://jfe.rochester.edu/data.htm.

² In Table A.1 in the appendix, we report the months, where the lowest 10 returns occured. Compared to the results reported in Daniel and Moskowitz (2016) three issues become evident: First, the crashes occur on different times than in the equity markets, the lowest returns in the currency markets are less in terms of economics magnitude compared to equity markets, and the crashes occur at different times for different strategies.