Abstract

https://ssrn.com/abstract=2193735
 
 

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Generalized Momentum and Flexible Asset Allocation (FAA): An Heuristic Approach


Wouter J. Keller


Flex Capital BV; VU University Amsterdam

Hugo S. van Putten


Flex Capital BV

December 24, 2012


Abstract:     
In this paper we extend the timeseries momentum (or trendfollowing) model towards a generalized momentum model, called Flexible Asset Allocation (FAA). This is done by adding new momentum factors to the traditional momentum factor R based on the relative returns among assets. These new factors are called Absolute momentum (A), Volatility momentum (V) and Correlation momentum (C). Each asset is ranked on each of the four factors R, A, V and C. By using a linearised representation of a loss function representing risk/return, we are able to arrive at simple closed form solutions for our flexible asset allocation strategy based on these four factors. We demonstrate the generalized momentum model by using a 7 asset portfolio model, which we backtest from 1998-2012, both in- and out-of-sample.

Number of Pages in PDF File: 19

Keywords: Tactical Asset Allocation, momentum, trendfollowing

JEL Classification: C00, C10, G00, G11


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Date posted: December 25, 2012 ; Last revised: January 16, 2015

Suggested Citation

Keller, Wouter J. and van Putten, Hugo S., Generalized Momentum and Flexible Asset Allocation (FAA): An Heuristic Approach (December 24, 2012). Available at SSRN: https://ssrn.com/abstract=2193735 or http://dx.doi.org/10.2139/ssrn.2193735

Contact Information

Wouter J. Keller (Contact Author)
Flex Capital BV ( email )
Waterkers 14
Krimpen Aan Den Ijssel
Holland, 2925 TJ
Netherlands
VU University Amsterdam ( email )
De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands
Hugo S. Van Putten
Flex Capital BV ( email )
Waterkers 14
Krimpen Aan Den Ijssel
Holland, 2925 TJ
Netherlands
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