Industry momentum crashes

Abstract

Industry momentum strategies produce strong returns, but these strategies also experience infrequent periods of negative returns similar to stock momentum strategies. Momentum crashes are most likely to occur in bear markets when the contemporaneous market return is positive as a result of high loser portfolio returns. Industry momentum strategies have had similar behaviour to written call options during bear markets, but in more recent data the option-like behaviour has disappeared. This bear market optionality is not as strong as it has been documented to be in stock momentum strategies.