Risk-Managed Industry Momentum and Momentum Crashes

46 Pages Posted: 28 Sep 2016 Last revised: 1 Jul 2017

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa

Joni Ruotsalainen

Inderes Oy

Janne Jaakko Äijö

University of Vaasa, Department of Accounting and Finance

Date Written: June 28, 2017

Abstract

This paper investigates Barosso and Santa-Clara’s (2015) risk-managed momentum strategy in an industry momentum setting. We investigate several traditional momentum strategies including that recently proposed by Novy-Marx (2012). We moreover examine the impact of different variance forecast horizons on average payoffs and also Daniel and Moskowitz’s (2016) optionality effects. Our results show in general that neither plain industry momentum strategies nor the risk-managed industry momentum strategies are subject optionality effects, implying that these strategies have no time-varying beta. Moreover, the benefits of risk management are robust across volatility estimators, momentum strategies and subsamples. Finally, the “echo effect” in industries is not robust in subsamples as the strategy works only during the most recent subsample.

Keywords: asset pricing, momentum crash, industry momentum, optionality effect

JEL Classification: G12, G14

Suggested Citation

Grobys, Klaus and Ruotsalainen, Joni and Äijö, Janne Jaakko, Risk-Managed Industry Momentum and Momentum Crashes (June 28, 2017). Available at SSRN: https://ssrn.com/abstract=2844140 or http://dx.doi.org/10.2139/ssrn.2844140

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

Joni Ruotsalainen

Inderes Oy ( email )

Itämerenkatu 5
Helsinki, 00180
Finland

Janne Jaakko Äijö

University of Vaasa, Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa
Finland

HOME PAGE: http://www.uwasa.fi/~jja

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