Although, according to uncovered interest rate parity, exchange rates should move so as to prevent the carry trade being systematically profitable, there is a vast empirical literature demonstrating the opposite. High interest currencies more often tend to appreciate rather than depreciate, as...

This paper focuses on cross-sectional equity momentum patterns by modeling a stock's price path as the interaction between a long-term growth component and a number of fluctuating price components that oscillate around the long-term trend at various distinct frequencies. Using this...

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii) The Volatility Puzzle. We offer resolutions of...

In this paper, we propose a stop-loss strategy to limit the downside risk of the well-known momentum strategy. At a stop-level of 10%, we find, with data from January 1926 to December 2013, that the maximum monthly losses of the equal- and value-weighted momentum strategies go down from -49.79%...

Despite momentum's strong historical performance, its returns have large negative skewness and occasionally experiences persistent strings of sharp negative returns, referred as "momentum crashes" in the recent literature. I argue that momentum crashes are due to crowded trades which push prices...

Momentum is one of the largest and most pervasive market anomalies. However, despite a high mean and Sharpe ratio, momentum suffers from large negative skewness that comes from momentum crash periods. These crashes occur in times of both market stress and market rebound and thus variables that...

This paper improves continuous-time variance swap approximation formulas to derive exact returns on benchmark VIX option portfolios. The new methodology preserves the variance swap interpretation that decomposes returns into realized variance and option implied-variance.We apply this new...

Portfolios in idiosyncratic momentum are formed on past residuals of the Fama-French three factor model rather than past total returns. This study examines whether the idiosyncratic momentum strategy can sustain excess returns following the emergence of traded options. We compare idiosyncratic...

Factor momentum produces robust average returns that exhibit a similar economic magnitude as documented for stock price momentum. To the extent that the PEAD factor captures mispricing, winner factors profit from being long on underpriced stocks and short on overpriced stocks. Oppositely, loser...

This paper investigates the performance of option investments across different stocks by computing monthly returns on at-the-money straddles on individual equities. It finds that options with high historical returns continue to significantly outperform options with low historical returns over...