Market volatility, momentum, and reversal: a switching strategy

Hilal Anwar Butt (), James W. Kolari () and Mohsin Sadaqat ()
Additional contact information
Hilal Anwar Butt: Institute of Business Administration
James W. Kolari: Texas A&M University
Mohsin Sadaqat: Institute of Business Administration

Journal of Asset Management, 2024, vol. 25, issue 5, No 3, 460-478

Abstract: Abstract Momentum profits collapse and reversal occurs when preceding market volatility is relatively high. Based on these intertemporal patterns, we implement an investment strategy that switches from momentum to reversal when volatility is high. The proposed switching strategy has two advantages over scaled momentum strategies: (1) the leverage factor is constant, and (2) no ex post information is used to control volatility. Additionally, in US stock market tests, the switching strategy eliminates losses due to momentum crashes, a problem that has plagued momentum strategies in practice. Further evidence confirms that the switching strategy is successful in other developed and emerging stock markets.

Keywords: Market volatility; Momentum; Momentum crashes; Reversal (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41260-024-00372-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:25:y:2024:i:5:d:10.1057_s41260-024-00372-1

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/s41260-024-00372-1

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().