Understanding the Momentum Risk Premium: An In-Depth Journey Through Trend-Following Strategies

102 Pages Posted: 9 Oct 2017

See all articles by Paul Jusselin

Paul Jusselin

Ecole Polytechnique, Palaiseau

Edmond Lezmi

Amundi Asset Management

Hassan Malongo

Amundi Asset Management; Université de Paris-Dauphine (Ceremade)

Côme Masselin

Amundi Asset Management

Thierry Roncalli

Amundi Asset Management; University of Evry

Tung-Lam Dao

Capital Fund Management

Date Written: September 24, 2017

Abstract

Momentum risk premium is one of the most important alternative risk premia. Since it is considered a market anomaly, it is not always well understood. Many publications on this topic are therefore based on backtesting and empirical results. However, some academic studies have developed a theoretical framework that allows us to understand the behavior of such strategies. In this paper, we extend the model of Bruder and Gaussel (2011) to the multivariate case. We can find the main properties found in academic literature, and obtain new theoretical findings on the momentum risk premium. In particular, we revisit the payoff of trend-following strategies, and analyze the impact of the asset universe on the risk/return profile. We also compare empirical stylized facts with the theoretical results obtained from our model. Finally, we study the hedging properties of trend-following strategies.

Keywords: Momentum risk premium, trend-following strategy, cross-section momentum, time-series momentum, alternative risk premium, market anomaly, diversification, correlation, payoff, trading impact, hedging, skewness, Gaussian quadratic forms, Kalman filter, EWMA

JEL Classification: C50, C60, G11

Suggested Citation

Jusselin, Paul and Lezmi, Edmond and Malongo, Hassan and Masselin, Côme and Roncalli, Thierry and Dao, Tung-Lam, Understanding the Momentum Risk Premium: An In-Depth Journey Through Trend-Following Strategies (September 24, 2017). Available at SSRN: https://ssrn.com/abstract=3042173 or http://dx.doi.org/10.2139/ssrn.3042173

Paul Jusselin

Ecole Polytechnique, Palaiseau ( email )

Palaiseau
France

Edmond Lezmi

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Hassan Malongo

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Université de Paris-Dauphine (Ceremade) ( email )

Place du Maréchal De Lattre De Tassigny
Paris, 75775
France

Côme Masselin

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Thierry Roncalli (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

University of Evry ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

Tung-Lam Dao

Capital Fund Management ( email )

23 rue de l'Universite
Paris, 75007
France
01 49 49 59 49 (Phone)
01 47 70 17 40 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,393
rank
12,050
Abstract Views
3,684
PlumX