Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market

Abstract

This paper studies the option-like behavior of popular momentum strategies implemented in foreign exchange markets. The results confirm those of Daniel and Moskowitz (2013) in finding strong option-like behavior for both momentum measures, based on the cumulative return from 12 and 6 months prior to the formation date to one month prior to the formation date. Surprisingly, there is no such evidence for the popular momentum strategy accounting for a one-month formation period.

Keywords: asset pricing, international financial markets, momentum crash, foreign exchange markets, currency markets.

JEL Classification: G12, G14