Partial Moment Momentum

50 Pages Posted: 17 Aug 2017 Last revised: 7 Dec 2017

See all articles by Yang Gao

Yang Gao

University of Sydney Business School

Henry Leung

University of Sydney Business School; Financial Research Network (FIRN)

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics

Date Written: December 7, 2017

Abstract

Momentum profits benefit from persistent trends of the market, which can be predicted by market volatility. However, such strategies are unable to distinguish between upside and downside risk. We propose partial moments-based momentum trading strategies and find that they outperform plain momentum and volatility-scaled momentum strategies. Our best performing partial moments-based strategy shows an annualized Sharpe ratio of 1.62 during the period of 2000–2016 against a Sharpe ratio of 0.15 from a plain momentum strategy. We suggest that this greater profitability is due to the unexploited investment opportunities that arise from being able to distinguish between good and bad risk. We find strong outperformance for seven out of eight partial moments-based strategies during states of market downturn. The outperformance is robust across different time periods.

Keywords: Downside risk, Momentum, Partial moments, Portfolio performance

JEL Classification: G11, G12, G17

Suggested Citation

Gao, Yang and Leung, Henry and Satchell, Stephen E., Partial Moment Momentum (December 7, 2017). 30th Australasian Finance and Banking Conference 2017. Available at SSRN: https://ssrn.com/abstract=3019861 or http://dx.doi.org/10.2139/ssrn.3019861

Yang Gao (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Henry Leung

University of Sydney Business School ( email )

402, H69
The University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
44 (0)1223 335213 (Phone)
44 (0)1223 335475 (Fax)

HOME PAGE: http://www.econ.cam.ac.uk/faculty/satchell/index.h

Register to save articles to
your library

Register

Paper statistics

Downloads
171
rank
171,750
Abstract Views
745
PlumX Metrics