Enhanced Momentum Strategies
73 Pages Posted: 19 Aug 2019 Last revised: 7 Aug 2020
Date Written: August 07, 2020
This paper compares the performance of three enhanced momentum strategies proposed in the literature — idiosyncratic momentum, constant 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, while the alphas from scaled strategies are distinct from idiosyncratic momentum alphas. In multiple model comparison tests, we show that idiosyncratic momentum emerges as the best momentum strategy. Finally, cross-country analyses relate momentum and constant volatility-scaled momentum returns to proxies for time-varying overconfidence, whereas idiosyncratic momentum and dynamic-scaled momentum are significantly less affected.
Keywords: Anomalies, Asset pricing, Momentum, International stock markets
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation