Implication of Momentum Crash in Covid-19

Research Article
Open access

Implication of Momentum Crash in Covid-19

Haoyu Zhou 1*
  • 1 Beijing Normal University - Hong Kong Baptist University United International College, China    
  • *corresponding author lncs@springer.com
Published on 21 March 2023 | https://doi.org/10.54254/2754-1169/3/2022800
AEMPS Vol.3
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-15-7
ISBN (Online): 978-1-915371-16-4

Abstract

This article seeks to investigate momentum strategy from January 2001 to June 2021 and establishes three types of consequences of momentum collapse triggered by covid-19. I demonstrate the validity of three types of implication, which are narrowing the window of positive return for momentum strategies, widening the average return gap between past winners and losers, and diminishing profit in the WML portfolio (winner minus loser) over time. Finally, I do further research in both the covid-19 and normal periods, and find that past winners and losers are more vulnerable to momentum crashes, as evidenced by a big reversal of return.

Keywords:

Covid-19, Momentum Crash, Momentum Strategy

Zhou,H. (2023). Implication of Momentum Crash in Covid-19. Advances in Economics, Management and Political Sciences,3,299-320.
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References

[1]. Eugene F. Fama., 1969. “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance, Volume 25, Issue 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the Ameri-can Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417.

[2]. Thaler, Richard and Werner F.M. De Bondt., 1985. “Does the Stock Market Overreact?” Journal of Finance, vol. 40, no. 3 Uuly):793-805.

[3]. Jegadeesh, N. and Titman, S., 1993. “Returns to buying winners and selling losers: implications for stock market efficiency.” The Journal of Finance 48, 65–91.

[4]. [Chan,L., Jegadeesh.N.,Lakonoshok, J., 1996, “Momentum strategies.” Journal of Finance 51, 1681-1713.

[5]. Bodie, Z., Kane, A. and Marcus, A.J., 2017. “Investments.” UK: McGraw-Hill.

[6]. Tobias Thejll, 2018.“Returns to Buying Winners and Selling Losers.” Bachelor’s Thesis in Finance.

[7]. Liu, W., Strong, N., Xu, X., 1999. “The profitability of momentum investing”. Journal of Business Finance and Accounting 26, 1043–1091.

[8]. Bacmann J., Dubois M., Isakov D., 2001. “Industries, business cycle and profitability of momentum strate-gies: an international perspective.” EFMA 2001 Lugano Meetings. Available at SSRN: http://ssrn.com/abstract=264657 or DOI: 10.2139/ssrn.264657.

[9]. Nijman T., Swinkels L., Verbeek M., 2002. “Do countries or industries explain momentum in Europe?” ERIM Report Series Reference No. ERS-2002-91-F&A. Available at SSRN: http://ssrn.com/abstract=301533 or DOI: 10.2139/ssrn.301533.

[10]. Forner C., Marhuenda J., 2003. “Contrarian and momentum strategies in the Spanish stock Market.” Euro-pean Financial Management 9,67–88.

[11]. Jenni L. Bettman., Thomas R.B. Maher, Stephen J. Sault, 2007. “Momentum profits in the Australian equity market: A matched firm approach.” Pacific-Basin Finance Journal 17 (2009) 565–579.

[12]. Daniel, Kent D., and Tobias J. Moskowitz. "Momentum crashes." Swiss Finance Institute Research Paper 13-61 (2013): 14-6.

[13]. Dougwaggle, Pankaj Agrrawal, and Don Johnson, 2001. “Interaction between value line’s timeliness and safety ranks.” Journal of Investing, Vol. 10 (1), Spring 2001. Available at SSRN: https://ssrn.com/abstract=2639040.

[14]. Michael J. Brennan, Jegadeesh, N and Bhaskaran Swaminathan,1993. “Investment Analysis and the Adjust-ment of Stock Prices to Common Information.” The Review of Financial Studies, Winter, 1993, Vol. 6, No. 4 (Winter, 1993), pp.799-824.

[15]. A. Do., R. Powell1., A. Singh and J. Yong.,2018. “When did the Global Financial Crisis start and end?” The proceedings of 3rd Business Doctoral and Emerging Scholars.

[16]. Tobias J. Moskowitz and Mark Grinblatt., 1999. “Do Industries Explain Momentum?” The Journal of Fi-nance, Aug., 1999, Vol. 54, No. 4, Papers and Proceedings, Fifty-Ninth Annual Meeting, American Finance Association, New York, New York, January 4-6, 1999 (Aug., 1999), pp. 1249-1290.

[17]. Andreas Waldkirch., 2021. “Firms around the World during the COVID-19 Pandemic.” Journal of Economic Integration, March 2021, Vol. 36, No. 1 (March 2021), pp. 3-19.

[18]. Tarek A. Hassan, Stephan Hollander, Laurence van Lent and Ahmed Tahoun, 2020. “Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1.” Available at: www.firmlevelrisk.com.

[19]. Affleck-Graves, John, and Richard R. Mendenhall. 1992. “The relationship between the Value Line enigma and post-earnings-announcement drift.” Journal of Financial Economics 31, 75-96.

[20]. Anthony J. Richards.,1997. “Winner-Loser Reversals in National Stock Market Indices: Can They be Ex-plained?” The Journal of Finance, Dec., 1997, Vol. 52, No. 5 (Dec., 1997), pp. 2129-2144.

[21]. Eugene F. Fama and Kenneth R. French, 1992. “The Cross-Section of Expected Stock Returns.” The Journal of Finance, June,1992, Vol 48, NO. 2.

[22]. Jegadeesh, N. and Titman, S., 2001. “Profitability of Momentum Strategies: An Evaluation of Alternative Explanations.” The Journal of Finance, Vol. 56, No. 2, pp. 699-720.

[23]. Narasimhan Jegadeesh.,1990. “Evidence of Predictable Behavior of Security Returns.” The Journal of Fi-nance, Jul., 1990, Vol. 45, No. 3, Papers and Proceedings, Forty-ninth Annual Meeting, American Finance Association, Atlanta, Georgia, December 28-30, 1989 (Jul., 1990), pp. 881-898.

[24]. Nusret Cakici and Adam Zaremba., 2021. “Who should be afraid of infections? Pandemic exposure and the cross-section of stock returns.” J. Int. Financ. Markets Inst. Money 72 (2021) 101333.

Cite this article

Zhou,H. (2023). Implication of Momentum Crash in Covid-19. Advances in Economics, Management and Political Sciences,3,299-320.

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Volume title: Proceedings of the 6th International Conference on Economic Management and Green Development (ICEMGD 2022), Part Ⅰ

ISBN：978-1-915371-15-7(Print) / 978-1-915371-16-4(Online)
Editor：Javier Cifuentes-Faura, Canh Thien Dang
Conference website: https://www.icemgd.org/
Conference date: 6 August 2022
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.3
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Eugene F. Fama., 1969. “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance, Volume 25, Issue 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the Ameri-can Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417.

[2]. Thaler, Richard and Werner F.M. De Bondt., 1985. “Does the Stock Market Overreact?” Journal of Finance, vol. 40, no. 3 Uuly):793-805.

[3]. Jegadeesh, N. and Titman, S., 1993. “Returns to buying winners and selling losers: implications for stock market efficiency.” The Journal of Finance 48, 65–91.

[4]. [Chan,L., Jegadeesh.N.,Lakonoshok, J., 1996, “Momentum strategies.” Journal of Finance 51, 1681-1713.

[5]. Bodie, Z., Kane, A. and Marcus, A.J., 2017. “Investments.” UK: McGraw-Hill.

[6]. Tobias Thejll, 2018.“Returns to Buying Winners and Selling Losers.” Bachelor’s Thesis in Finance.

[7]. Liu, W., Strong, N., Xu, X., 1999. “The profitability of momentum investing”. Journal of Business Finance and Accounting 26, 1043–1091.

[8]. Bacmann J., Dubois M., Isakov D., 2001. “Industries, business cycle and profitability of momentum strate-gies: an international perspective.” EFMA 2001 Lugano Meetings. Available at SSRN: http://ssrn.com/abstract=264657 or DOI: 10.2139/ssrn.264657.

[9]. Nijman T., Swinkels L., Verbeek M., 2002. “Do countries or industries explain momentum in Europe?” ERIM Report Series Reference No. ERS-2002-91-F&A. Available at SSRN: http://ssrn.com/abstract=301533 or DOI: 10.2139/ssrn.301533.

[10]. Forner C., Marhuenda J., 2003. “Contrarian and momentum strategies in the Spanish stock Market.” Euro-pean Financial Management 9,67–88.

[11]. Jenni L. Bettman., Thomas R.B. Maher, Stephen J. Sault, 2007. “Momentum profits in the Australian equity market: A matched firm approach.” Pacific-Basin Finance Journal 17 (2009) 565–579.

[12]. Daniel, Kent D., and Tobias J. Moskowitz. "Momentum crashes." Swiss Finance Institute Research Paper 13-61 (2013): 14-6.

[13]. Dougwaggle, Pankaj Agrrawal, and Don Johnson, 2001. “Interaction between value line’s timeliness and safety ranks.” Journal of Investing, Vol. 10 (1), Spring 2001. Available at SSRN: https://ssrn.com/abstract=2639040.

[14]. Michael J. Brennan, Jegadeesh, N and Bhaskaran Swaminathan,1993. “Investment Analysis and the Adjust-ment of Stock Prices to Common Information.” The Review of Financial Studies, Winter, 1993, Vol. 6, No. 4 (Winter, 1993), pp.799-824.

[15]. A. Do., R. Powell1., A. Singh and J. Yong.,2018. “When did the Global Financial Crisis start and end?” The proceedings of 3rd Business Doctoral and Emerging Scholars.

[16]. Tobias J. Moskowitz and Mark Grinblatt., 1999. “Do Industries Explain Momentum?” The Journal of Fi-nance, Aug., 1999, Vol. 54, No. 4, Papers and Proceedings, Fifty-Ninth Annual Meeting, American Finance Association, New York, New York, January 4-6, 1999 (Aug., 1999), pp. 1249-1290.

[17]. Andreas Waldkirch., 2021. “Firms around the World during the COVID-19 Pandemic.” Journal of Economic Integration, March 2021, Vol. 36, No. 1 (March 2021), pp. 3-19.

[18]. Tarek A. Hassan, Stephan Hollander, Laurence van Lent and Ahmed Tahoun, 2020. “Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1.” Available at: www.firmlevelrisk.com.

[19]. Affleck-Graves, John, and Richard R. Mendenhall. 1992. “The relationship between the Value Line enigma and post-earnings-announcement drift.” Journal of Financial Economics 31, 75-96.

[20]. Anthony J. Richards.,1997. “Winner-Loser Reversals in National Stock Market Indices: Can They be Ex-plained?” The Journal of Finance, Dec., 1997, Vol. 52, No. 5 (Dec., 1997), pp. 2129-2144.

[21]. Eugene F. Fama and Kenneth R. French, 1992. “The Cross-Section of Expected Stock Returns.” The Journal of Finance, June,1992, Vol 48, NO. 2.

[22]. Jegadeesh, N. and Titman, S., 2001. “Profitability of Momentum Strategies: An Evaluation of Alternative Explanations.” The Journal of Finance, Vol. 56, No. 2, pp. 699-720.

[23]. Narasimhan Jegadeesh.,1990. “Evidence of Predictable Behavior of Security Returns.” The Journal of Fi-nance, Jul., 1990, Vol. 45, No. 3, Papers and Proceedings, Forty-ninth Annual Meeting, American Finance Association, Atlanta, Georgia, December 28-30, 1989 (Jul., 1990), pp. 881-898.

[24]. Nusret Cakici and Adam Zaremba., 2021. “Who should be afraid of infections? Pandemic exposure and the cross-section of stock returns.” J. Int. Financ. Markets Inst. Money 72 (2021) 101333.

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