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Drawdown-Recovery Premium

Updated annualData needs: lowlong only

2020

#40 max_drawdown_premium: loosely inspired by Atilgan, Bali, Demirtas & Gunaydin 2020, "Left-tail momentum: Underreaction to bad news, costly arbitrage and equity returns", JFE 135(3):725-753. Note: the paper finds the OPPOSITE direction (high left-tail-risk stocks continue to underperform); this family is a time-series drawdown-recovery rule, not the paper's strategy.

Read the paper →

In plain terms

Buys stocks that crashed hard over the past year, but only after the price climbs back above its 60-day average (a recovery filter). The cited paper actually finds that crashed, high-tail-risk stocks tend to KEEP underperforming, so the recovery conditioning, not tail-risk compensation, is what this strategy leans on.

How it works

Time-series capitulation-rebound rule: go long when a stock has suffered a deep trailing 252d max drawdown (threshold grid -20%/-30%/-40%/-60%) AND price has reclaimed its 60d MA ("emerged from the pit"), held 10-126d. Attribution correction (2026-07-04 audit): Atilgan-Bali-Demirtas-Gunaydin 2020 finds a significantly NEGATIVE cross-sectional relation between past-1y left-tail risk (VaR/ES decile sorts, monthly rebalance) and future returns; high left-tail-risk stocks are overpriced and keep underperforming (underreaction to bad news). The paper does not support going long deep-drawdown names. Any edge here comes from the 60d-MA recovery conditioning, not crash-risk compensation.

Live results

30 times picked on its own · 47 times inside a blend (33 beat the stock) · updated 2026-07-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 47 such blended picks (33 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

Loading substrate evidence…

Data dependencies

Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.

Expected edge

Reported return: Paper: high left-tail-risk (VaR/ES) deciles earn significantly NEGATIVE subsequent alpha (left-tail momentum). Implemented rebound sleeve: ~2-3% ann. residual after distress controls (contested; overlaps distress/O-score).

Status: contested in pure form (overlaps with distress / O-score) — once you control for default-risk proxies, the residual sleeve is ~2-3% annualized but stable.

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