Momentum Crashes and the 52-Week High

Momentum strategies suffer from occasional large drawdowns referred to as momentum crashes when the market rebounds. This paper documents that stocks far from peaks outperform stocks near peaks, and momentum crashes are attributable to such outperformance. Market rebounds triggers increase in investor sentiment, or equivalently, inflow of speculative demands. Since speculators are prone to anchoring bias, these demands concentrate on stocks far from peaks, which results in their price run-up. Furthermore, this contribute substantially to general time-variation and fat tailed distribution of unconditional momentum profits. Our finding extends to Japan, the United Kingdom, and continental Europe