Momentum has its moments

Pedro Barroso; Pedro Santa-Clara

doi:10.1016/j.jfineco.2014.11.010

Momentum has its moments

Pedro Barroso, Pedro Santa-Clara

NOVA School of Business and Economics (NOVA SBE)

Research output: Contribution to journal › Article › peer-review

370 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 language	English
Pages (from-to)	111-120
Number of pages	10
Journal	Journal of Financial Economics
Volume	116
Issue number	1
DOIs	https://doi.org/10.1016/j.jfineco.2014.11.010
Publication status	Published - 1 Apr 2015

Keywords

Anomalies
Momentum
Time-varying risk
Transaction costs of momentum

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Cite this

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KW - Time-varying risk

KW - Transaction costs of momentum

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Momentum has its moments

Abstract

Keywords

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