Risk-Managed Momentum: The Effect of Leverage Constraints

9 Pages Posted: 28 Jul 2017

Date Written: July 25, 2017


Risk-managed momentum allows investors to increase the Sharpe ratio of the momentum strategy and to reduce momentum crashes. Yet, the improvement in the performance comes at the price of often assuming a levered position on plain momentum. I show that leverage-constrained investors benefit from a risk-managed momentum strategy that scales the momentum exposure with the past realized positive semi-variance of momentum returns rather than with the past realized variance.

Keywords: Momentum, Variance Decomposition, Performance

JEL Classification: C58, G11, G12, G17

Suggested Citation

Nucera, Federico, Risk-Managed Momentum: The Effect of Leverage Constraints (July 25, 2017). Available at SSRN: https://ssrn.com/abstract=3008530 or http://dx.doi.org/10.2139/ssrn.3008530

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