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Momentum investing: a stylized model
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Resumo(s)
Momentum is one of the most important anomalies in the financial world, heavily used by investors, from hedge funds to individuals. Stock returns have other characteristics, such as reversals. This study proposes accounting for that to improve momentum, while also studying volatility reduction approaches. The developed model leads to a much higher Sharpe ratio and alpha for the US market and lower risk than unrestricted momentum. An improvement of this magnitude could affect investors significantly. However, the increase in turnover is so large that there is no significant difference in returns to unrestricted momentum after monthly trading costs of 1.1%.
Descrição
A Work Project, presented as part of the requirements for the Award of a Master’s Degree in International Finance from Nova School of Business and Economics
Palavras-chave
Momentum Reversal Volatility Market anomaly