MOMENTUM STRATEGY ALTERNATIVES DURING COVID-19 PANDEMIC: AN EMPIRICAL STUDY IN INDONESIA

In some circumstances, especially in the crisis period, conventional or relative strength momentum strategy has led to momentum crash, giving rise to a negative return for investors. As a consequence, many researchers have developed new momentum strategies which had better performance than relative momentum strategy as they have been proven could withstand the extreme volatility in the crisis period, such as (1) residual momentum strategy, (2) absolute strength momentum strategy, and (3) removing stocks with extreme absolute strength. The purpose of this research is to examine the outcome of those new momentum strategy alternatives during Covid-19, one of the potential crisis periods that could lead to a momentum crash, which will be divided into 4 phases from the beginning until the recovery period. This research uses the Fama-French three factors asset pricing model in regression to calculate the abnormal return generated by those strategies in the Indonesia Stock Exchange, specifically LQ45 stocks (high liquidity and large market capitalization stocks). This study shows that at the beginning of Covid-19, no strategy could generate a positive abnormal return. However, the absolute strength momentum strategy could generate a positive abnormal return during the crash and recovery period. Meanwhile, the other strategies have proven worse to be implemented in the crash and recovery phases of Covid-19 than the absolute strength momentum strategy. This research contributes to the existing literature by analyzing new momentum strategy alternatives for investors to optimize their portfolio return, especially during a crisis.