Relative and Absolute Momentum in Times of Rising/Low Yields: Bold Asset Allocation (BAA)

14 Pages Posted: 25 Jul 2022

Date Written: July 18, 2022

Abstract

Our aim is to develop a very offensive (‘aggressive’) tactical asset allocation strategy, by combining some of our previous models like Protected- (PAA), Vigilant- (VAA) and Defensive (DAA) Asset Allocation. We will call this new strategy the ‘Bold Asset Allocation’ (BAA). BAA combines a slow relative momentum with a fast absolute momentum and crash protection, based on the concept of the ‘canary’ universe, where we switch from our offensive to the defensive universe when any of the assets in the canary universe has negative absolute momentum. As a result, BAA spends ca 60% in the defensive universe. By enhancing this defensive universe beyond cash, we find very impressive returns (>=20%) with low monthly max drawdowns (<=15%) over Dec 1970 – Jun 2022.

Keywords: Rising Yields, Inflation, Breadth Momentum, Canary Universe, Dual Momentum, Absolute and Relative Momentum, Crash Protection, Backtesting, 60/40, PAA, VAA, DAA

JEL Classification: C00, C10, C22, G00, G11, G10, G14

Suggested Citation

Keller, Wouter J., Relative and Absolute Momentum in Times of Rising/Low Yields: Bold Asset Allocation (BAA) (July 18, 2022). Available at SSRN: https://ssrn.com/abstract=4166845 or http://dx.doi.org/10.2139/ssrn.4166845

Wouter J. Keller (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NH 1081 HV
Netherlands
+31622392446 (Phone)

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