Momentum Turning Points

80 Pages Posted: 5 Dec 2019 Last revised: 29 Jul 2021

See all articles by Ashish Garg

Ashish Garg

Research Affiliates LLC

Christian L. Goulding

Research Affiliates, LLC

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Michele Mazzoleni

Research Affiliates, LLC

Date Written: July 28, 2021

Abstract

Turning points are the Achilles' heel of time-series momentum portfolios. Slow signals fail to react quickly to changes in trend while fast signals are often false alarms. We examine theoretically and empirically how momentum portfolios of various intermediate speeds, formed by blending slow and fast strategies, cope with turning points. Our model predicts a mean-variance optimal dynamic speed selection strategy. We apply this strategy across domestic and international equity markets and document efficient out-of-sample performance. We also propose a novel decomposition of momentum strategy alpha, highlighting the role of volatility timing.

Keywords: time-series momentum, volatility timing, market timing, asset pricing, trend following, turning points, momentum speed, mean reversion, behavioral finance

JEL Classification: G12, G13

Suggested Citation

Garg, Ashish and Goulding, Christian L. and Harvey, Campbell R. and Mazzoleni, Michele, Momentum Turning Points (July 28, 2021). Available at SSRN: https://ssrn.com/abstract=3489539 or http://dx.doi.org/10.2139/ssrn.3489539

Ashish Garg

Research Affiliates LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Christian L. Goulding

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michele Mazzoleni

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://https://www.researchaffiliates.com/en_us/about-us/our-team/michele-mazzoleni.html

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