Risk Adjusted Momentum Strategies: A Comparison between Constant and Dynamic Volatility Scaling Approaches

22 Pages Posted: 28 Nov 2017

See all articles by Minyou Fan

Minyou Fan

Queen's University Belfast, Queen's Management School

Youwei Li

Hull University Business School

Jiadong Liu

Queen's University Belfast - Queen's Management School

Date Written: November 13, 2017

Abstract

We compare the performance of two volatility scaling methods in momentum strategies: (i) the constant volatility scaling approach of Barroso and Santa-Clara (2015), and (ii) the dynamic volatility scaling method of Daniel and Moskowitz (2016). We perform momentum strategies based on these two approaches in an asset pool consisting of 55 global liquid futures contracts, and further compare these results to the time series momentum and buy-and-hold strategies. We find that the momentum strategy based on the constant volatility scaling method is the most efficient approach with an annual return of 15.3%.

Keywords: Cross-sectional momentum, Time series momentum, Momentum crashes, Volatility scaling

JEL Classification: G11, G12, G13

Suggested Citation

Fan, Minyou and Li, Youwei and Liu, Jiadong, Risk Adjusted Momentum Strategies: A Comparison between Constant and Dynamic Volatility Scaling Approaches (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=3076715 or http://dx.doi.org/10.2139/ssrn.3076715

Minyou Fan (Contact Author)

Queen's University Belfast, Queen's Management School ( email )

Riddle Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

Youwei Li

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

Jiadong Liu

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

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