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
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
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