39 Pages Posted: 18 Apr 2012 Last revised: 20 Nov 2015
Date Written: November 1, 2014
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: Stock momentum, risk management, anomalies
JEL Classification: G11, G12, G14, G17
Suggested Citation: Suggested Citation
Barroso, Pedro and Santa-Clara, Pedro, Momentum Has Its Moments (November 1, 2014). Journal of Financial Economics (JFE), vol. 116, Issue 1, 2015, 111-120. Available at SSRN: https://ssrn.com/abstract=2041429 or http://dx.doi.org/10.2139/ssrn.2041429
By Karen Lewis