"The crashes periodically experienced in a momentum strategy can be significant, as Figure 2 shows. The relentless upward climb of prices depicted in Figure 1 disguises (thanks to the log-scale of the chart) the sudden and abrupt drawdowns that a momentum investor must live with. These drawdowns usually occur following periods of heightened volatility, typically a function of a crisis event. Since 1927, drawdowns have generally been under 20%, but the granddaddy of all drawdowns was the 74% plunge in prices in the aftermath of the Great Depression. In the last 15 years, the U.S. equity market has been visited with two major negative momentum events: the first, a 31% drawdown after the tech bubble burst in 2000, and the second, a 57% drawdown, in the wake of the 2008 global financial crisis. "
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