Beta momentum strategy after extreme market movements

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The authors adopt an event study method and empirically investigate the performance of a beta momentum strategy (long in past winners of small beta and short in past losers of large beta) after extreme market movements in 20 countries. The researchers find that the beta momentum strategy yields material abnormal returns after controlling for return factors of size (SMB), book-to-market (HML) and momentum (UMD). The results are consistent for both extreme market UP days or DOWN days and regardless of whether the extreme market movements are identified by three percent or two percent cut-off points. In addition, the results based on the beta momentum strategy are more consistent than those of conventional momentum and betting against beta (BAB) strategies over different test windows from (0, +1) days to (0, +90). Finally, the abnormal returns based on momentum, BAB, and our beta momentum strategies are statistically insignificant for the Asian and Australian subsamples, whereas the results are significant for the European and North American samples.

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    • Table 1. Summary statistics for different countries
    • Table 2. Descriptive statistics for different subsamples
    • Table 3. Cumulative abnormal returns (CARs) after extreme market movements
    • Table 4. Cumulative abnormal returns (CARs) based on DOWN vs UP days and for different geographic areas
    • Table 5. Descriptive statistics for matched samples
    • Table 6. Buy and hold abnormal returns (BHARs) after extreme market movements
    • Table 7. Cumulative abnormal returns (CARs) after extreme market movements using 2 percent cut-off point