Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258645 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 11 [Article No.:] 542 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-25
Publisher: 
MDPI, Basel
Abstract: 
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.
Subjects: 
momentum
mean-reversion
maximum drawdown
recovery
alternative stock selection rules
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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