Physical Approach to Price Momentum and Its Application to Momentum Strategy

Physica A: Statistical Mechanics and its Applications 415 (2014), pp. 61-72

23 Pages Posted: 14 Aug 2012 Last revised: 21 Aug 2014

Date Written: August 20, 2014

Abstract

We introduce various quantitative and mathematical definitions for price momentum of financial instruments. The price momentum is quantified with velocity and mass concepts originated from the momentum in physics. By using the physical momentum of price as a selection criterion, the weekly contrarian strategies are implemented in South Korea KOSPI 200 and US S&P 500 universes. The alternative strategies constructed by the physical momentum achieve the better expected returns and reward-risk measures than those of the traditional contrarian strategy in weekly scale. The portfolio performance is not understood by the Fama-French three-factor model.

Keywords: price momentum, momentum/contrarian strategies, alternative stock selection rule

Suggested Citation

Choi, Jaehyung, Physical Approach to Price Momentum and Its Application to Momentum Strategy (August 20, 2014). Physica A: Statistical Mechanics and its Applications 415 (2014), pp. 61-72, Available at SSRN: https://ssrn.com/abstract=2128946 or http://dx.doi.org/10.2139/ssrn.2128946

Jaehyung Choi (Contact Author)

SUNY at Stony Brook ( email )

Department of Applied Mathematics and Statistics
Quantitative Finance Program
Stony Brook, NY 11794
United States

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