Maximum Drawdown, Recovery, and Momentum

We empirically test predictability on asset price using stock selection rules based maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- weekly contrarian-style portfolios constructed from these alternative criteria are superior not only in forecasting directions of prices but also capturing cross-sectional return differentials. periods, the ranked by measures exhibit outperformance over other momentum including traditional cumulative return-based portfolios. time scales, recovery-related best ranking for detecting mean-reversion. For their baskets, improved risk profiles reward-risk imply more consistent prediction direction assets future. Moreover, turnover rates momentum/contrarian reduced with respect to benchmark Carhart four-factor analysis, higher factor-neutral intercepts strategies another evidence robust rules.