Abstract

http://ssrn.com/abstract=2457647
 


 



Risk Adjusted Time Series Momentum


Martin Dudler


Quantica Capital

Bruno Gmuer


Quantica Capital

Semyon Malamud


Ecole Polytechnique Federale de Lausanne; Swiss Finance Institute

June 22, 2014


Abstract:     
We introduce a new class of momentum strategies that are based on the long-term averages of risk-adjusted returns and test these strategies on a universe of 64 liquid futures contracts. We show that this risk adjusted momentum strategy outperforms the time series momentum strategy of Ooi, Moskowitz and Pedersen (2012) for almost all combinations of holding- and look-back periods. We construct measures of momentum-specific volatility (risk), (both within and across asset classes) and show that these volatility measures can be used both for risk management and it momentum timing. We find that momentum risk management significantly increases Sharpe ratios, but at the same time leads to more pronounced negative skewness and tail risk; by contrast, combining risk management with momentum timing practically eliminates the negative skewness of momentum returns and significantly reduces tail risk. In addition, momentum risk management leads to a much lower exposure to market, value, and momentum factors. As a result, risk-managed momentum returns offer much higher diversification benefits than the standard momentum returns.

Number of Pages in PDF File: 55

Keywords: momentum, risk, return, volatility, trend following

JEL Classification: C41; G11

working papers series


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Date posted: June 23, 2014  

Suggested Citation

Dudler, Martin and Gmuer, Bruno and Malamud, Semyon, Risk Adjusted Time Series Momentum (June 22, 2014). Available at SSRN: http://ssrn.com/abstract=2457647 or http://dx.doi.org/10.2139/ssrn.2457647

Contact Information

Martin Dudler
Quantica Capital ( email )
Freier Platz 10
Schaffhausen
Switzerland
Bruno Gmuer
Quantica Capital ( email )
Freier Platz 10
Schaffhausen
Switzerland
Semyon Malamud (Contact Author)
Ecole Polytechnique Federale de Lausanne ( email )
Lausanne, 1015
Switzerland
Swiss Finance Institute
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
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