We develop momentum and contrarian strategies with stock selection rules based on maximum drawdown and consecutive recovery. The alternative strategies in monthly and weekly scales outperform the portfolios constructed by cumulative return regardless of marketuniverse. In monthly periods, the ranking rules associated with the maximum drawdown dominate other momentum strategies. The recovery related selection rules are the best ranking criteria for the weekly contrarian portfolio construction. The alternative portfolios are less riskier in many reward-risk measures such as Sharpe ratio, VaR, CVaR , and maximum drawdown. The outperformance of the alternative strategies leads to the higher factor-neutral alphas in the Fama-French three-factor model .
We test predictability on asset price using stock selection rules based on maximum drawdown and consecutive recovery. Monthly momentum- and weekly contrarian-style portfolios ranked by the alternative selection criteria are implemented in various asset classes. Regardless of market, the alternative ranking rules are superior in forecasting asset prices and capturing cross-sectional return differentials. In a monthly period, alternative portfolios constructed by maximum drawdown measures dominate other momentum portfolios including the cumulative return-based momentum portfolios. Recovery-related stock selection criteria are the best ranking measures for predicting mean-reversion in a weekly scale. Prediction on future directions becomes more consistent, because the alternative portfolios are less riskier in various reward-risk measures such as Sharpe ratio, VaR, CVaR and maximum drawdown. 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 .
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develop momentum and contrarian strategies with
test predictability on asset price using
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The alternative strategies in monthly and weekly scales outperform the portfolios constructed by cumulative return regardless of marketuniverse. In monthly periods, the ranking rules associated with the maximum drawdown
Monthly momentum- and weekly contrarian-style portfolios ranked by the alternative selection criteria are implemented in various asset classes. Regardless of market, the alternative ranking rules are superior in forecasting asset prices and capturing cross-sectional return differentials. In a monthly period, alternative portfolios constructed by maximum drawdown measures
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strategies. The recovery related selection rules
portfolios including the cumulative return-based momentum portfolios. Recovery-related stock selection criteria
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criteria for the weekly contrarian portfolio construction. The
measures for predicting mean-reversion in a weekly scale. Prediction on future directions becomes more consistent, because the
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various
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The outperformance of the alternative strategies leads to the higher
In the Carhart four-factor analysis, higher
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alphas in the Fama-French three-factor model
intercepts for the alternative strategies are another evidence for the robust prediction by the alternative stock selection rules