Asymmetric Momentum Strategies on Growth Markets
This paper finds that price momentum is asymmetric: price trends may build over time, then cascade.
ABSTRACT
The paper investigates momentum strategies on the NASDAQ 100. Winner portfolios tend to outperform loser portfolios by more than 20% per year. We show an asymmetric effect between winner and loser returns. Winners tend to build up their performance over a longer period of time whereas losers tend to lose performance more rapidly. The behavior of five different investors is compared. We show that the investor who behaves according to the Bayes rule, can improve the success of the momentum strategy significantly. Additionally, this investor uses the information in the historical prices most successful.
Source: Stotz, Olaf and Coche, Joachim, Asymmetric Momentum Strategies on Growth Markets (July 9, 1999). Financial Technology Working Paper No. 99/6. Available at SSRN: http://ssrn.com/abstract=173415 or doi:10.2139/ssrn.173415
Anothr paper on the asymmetric nature of price trends is Investor Reaction to Good and Bad News is Asymmetric.
