Risk-Managed 52-Week High Industry Momentum, Momentum Crashes, and Hedging Macroeconomic Risk
38 Pages Posted: 25 Jan 2017 Last revised: 19 Jul 2017
Date Written: July 2017
This is the first study to investigate the profitability of Barroso and Santa-Clara’s (2015) risk-managing approach for George and Hwang’s (2004) 52-week high momentum strategy in an industrial portfolio setting. The findings indicate that risk-managing adds value as the Sharpe ratio increases, and the downside risk decreases notably. Even after controlling for the spread of the traditional 52-week high industry momentum strategy in association with standard risk factors, the risk-managed version generates economically and statistically significant payoffs. Notably, the risk-managed strategy is partially explained by changes in cross-sectional return dispersion, whereas the traditional strategy does not appear to be exposed to such economic risks.
Keywords: asset pricing, momentum crash, industry momentum, optionality effect, 52-week high momentum
JEL Classification: G12, G14
Suggested Citation: Suggested Citation