Risk-Managed Momentum Strategies

177 Pages Posted: 14 Sep 2019 Last revised: 30 Jun 2020

See all articles by Lars Rickenberg

Lars Rickenberg

University of Mannheim - Department of Risk Theory, Portfolio Management and Insurance

Date Written: September 2, 2019


We show that conditional skewness and kurtosis of the momentum strategy are highly time-varying and sometimes take extreme values or may even not exist. The high negative skewness and high kurtosis arise since the winners' and losers' skewness moves in opposite directions, whereas the kurtosis comoves. Moreover, momentum returns do not follow a random walk. Based on these observations, we present strategies that manage momentum's volatility by advanced volatility models in calm periods and downside risk models in periods when a momentum crash is likely. Compared to the Realized Volatility managed momentum strategy, which is frequently examined in the literature, our switching strategy exhibits higher returns, significantly reduces left tail risk and provides economically high and statistically significant utility gains for mean-variance investors, CRRA investors as well as loss-averse investors.

Keywords: Momentum Crashes, Time-Varying Risk, Risk targeting, Downside Risk, Dynamic trading strategies

JEL Classification: C53, G11, G17

Suggested Citation

Rickenberg, Lars, Risk-Managed Momentum Strategies (September 2, 2019). Available at SSRN: https://ssrn.com/abstract=3448995 or http://dx.doi.org/10.2139/ssrn.3448995

Lars Rickenberg (Contact Author)

University of Mannheim - Department of Risk Theory, Portfolio Management and Insurance ( email )

Mannheim, 68131

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