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Generalized Momentum Asset Allocation Model

Piotr Arendarski (), Pawel Misiewicz, Mariusz Nowak (), Tomasz Skoczylas and Robert Wojciechowski ()
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Mariusz Nowak: Quantitative Finance Research Group, University of Warsaw

No 2014-30, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: In this paper we propose Generalized Momentum Asset Allocation Model (GMAA). GMAA is a new approach to construct optimal portfolio and is based on close examination of asset’s returns distribution. GMAA tries to capture certain market phenomena and use information they contain as predictors for future returns. Our model is validated using MSCI Indexes with MSCI World Index set as a benchmark. We find results rather promising as we managed to significantly reduce portfolio volatility and obtain stable path of cumulative returns of portfolio. Our model outperforms benchmark in terms of Information Ratio or Maximum Drawdown. Detailed sensitivity analysis was conducted at the end of this paper and it shows that our strategy is sensitive to a few optimization parameters thus further research may be required.

Keywords: asset allocation; diversification; momentum; trading strategy; capital asset pricing models; returns forecasting; efficient risk and return measures (search for similar items in EconPapers)
JEL-codes: C22 C53 C61 G11 G14 G15 G23 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2014
New Economics Papers: this item is included in nep-rmg
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