Enhanced Momentum Strategies
66 Pages Posted: 19 Aug 2019 Last revised: 17 Nov 2019
Date Written: November 14, 2019
This paper compares the performance of three momentum risk management techniques proposed in the literature — idiosyncratic momentum, constant volatility-scaling and dynamic scaling. Using data for individual stocks from the U.S. and across 48 international countries, we find that all three approaches decrease momentum crashes, lead to higher risk-adjusted returns and raise break even transaction costs. In a multiple model comparison test that also controls for other factors, idiosyncratic momentum emerges as the best momentum strategy. Finally, we find that the alpha stemming from volatility-scaling is distinctive from the idiosyncratic momentum alpha.
Keywords: Momentum, Momentum Scaling, Idiosyncratic Momentum, Risk Management
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation