Risk-Managed 52-Week High Industry Momentum, Momentum Crashes, and Hedging Macroeconomic Risk

38 Pages Posted: 25 Jan 2017 Last revised: 19 Jul 2017

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Date Written: July 2017

Abstract

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

Grobys, Klaus, Risk-Managed 52-Week High Industry Momentum, Momentum Crashes, and Hedging Macroeconomic Risk (July 2017). Available at SSRN: https://ssrn.com/abstract=2903989 or http://dx.doi.org/10.2139/ssrn.2903989

Klaus Grobys (Contact Author)

University of Vaasa ( email )

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

University of Jyväskyla ( email )

Jyväskyla
Finland

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