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Momentum has its moments

Pedro Barroso and Pedro Santa-Clara

Journal of Financial Economics, 2015, vol. 116, issue 1, 111-120

Abstract: Compared with the market, value, or size factors, momentum has offered investors the highest Sharpe ratio. However, momentum has also had the worst crashes, making the strategy unappealing to investors who dislike negative skewness and kurtosis. We find that the risk of momentum is highly variable over time and predictable. Managing this risk virtually eliminates crashes and nearly doubles the Sharpe ratio of the momentum strategy. Risk-managed momentum is a much greater puzzle than the original version.

Keywords: Anomalies; Momentum; Time-varying risk; Transaction costs of momentum (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (252)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:116:y:2015:i:1:p:111-120

DOI: 10.1016/j.jfineco.2014.11.010

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