Momentum has its moments

Pedro Barroso, Pedro Santa-Clara

Research output: Contribution to journalArticlepeer-review

325 Citations (Scopus)

Abstract

Compared with the market, value, or size factors, momentum has offered investors the highest Sharpe ratio. However, momentum has also had the worst crashes, making the strategy unappealing to investors who dislike negative skewness and kurtosis. We find that the risk of momentum is highly variable over time and predictable. Managing this risk virtually eliminates crashes and nearly doubles the Sharpe ratio of the momentum strategy. Risk-managed momentum is a much greater puzzle than the original version.

Original languageEnglish
Pages (from-to)111-120
Number of pages10
JournalJournal of Financial Economics
Volume116
Issue number1
DOIs
Publication statusPublished - 1 Apr 2015

Keywords

  • Anomalies
  • Momentum
  • Time-varying risk
  • Transaction costs of momentum

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