Momentum Has Its Moments

39 Pages Posted: 18 Apr 2012 Last revised: 20 Nov 2015

Pedro Barroso

UNSW Australia Business School, School of Banking and Finance

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: November 1, 2014

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: Stock momentum, risk management, anomalies

JEL Classification: G11, G12, G14, G17

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

Pedro Barroso (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics ( email )

Lisbon
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~psc/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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