Enhanced Momentum Strategies

Abstract

This paper compares the performance of three enhanced momentum strategies proposed in the literature: constant volatility-scaled momentum, constant semi-volatility-scaled momentum, and dynamic-scaled momentum. Using data for individual stocks from the U.S. and across 48 international countries, we find that all three approaches decrease momentum crashes and lead to higher risk-adjusted returns. However, in multiple factor comparison tests, no enhanced momentum strategy emerges as consistently superior. Finally, cross-country analyses relate momentum and the two constant volatility-scaled momentum returns to market dynamics, whereas dynamic-scaled momentum is significantly less affected, suggesting a reduced sensitivity to time-varying investor overconfidence.

Keywords: Anomalies, Asset pricing, Momentum, International stock markets

JEL Classification: G12, G14, G15