TY - JOUR
T1 - Profitability of momentum strategies
T2 - Application of novel risk/return ratio stock selection criteria
AU - Biglova, Almira
AU - Jašić, Teo
AU - Rachev, Svetlozar
AU - Fabozzi, Frank J.
PY - 2004
Y1 - 2004
N2 - In this paper, we introduce performance risk/return Ratios as new criteria for the construction of the winner and loser portfolios in momentum strategies. Our results show that momentum strategies based on novel risk/return Ratio criteria applied to previous 6-month or 12-month periods, generate positive returns over 6-month and 12-month holding periods and are more profitable than strategies based on usual cumulative or total return benchmarks. We compare strategies driven by different performance Ratios and cumulative return benchmark using independent performance measures based on a coherent risk measure (expected shortfall risk) and cumulative return over the holding period. Specifically, the R-Ratio emerges in our study as the best candidate for momentum portfolio construction. Finally, we model momentum profits in a GARCH-stable setting and validate our assumptions on the winner and loser return patterns.
AB - In this paper, we introduce performance risk/return Ratios as new criteria for the construction of the winner and loser portfolios in momentum strategies. Our results show that momentum strategies based on novel risk/return Ratio criteria applied to previous 6-month or 12-month periods, generate positive returns over 6-month and 12-month holding periods and are more profitable than strategies based on usual cumulative or total return benchmarks. We compare strategies driven by different performance Ratios and cumulative return benchmark using independent performance measures based on a coherent risk measure (expected shortfall risk) and cumulative return over the holding period. Specifically, the R-Ratio emerges in our study as the best candidate for momentum portfolio construction. Finally, we model momentum profits in a GARCH-stable setting and validate our assumptions on the winner and loser return patterns.
KW - GARCH-stable modeling
KW - Momentum strategies
KW - Risk/return Ratio criterion
UR - http://www.scopus.com/inward/record.url?scp=84891855860&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:84891855860
SN - 1810-4967
VL - 1
SP - 47
EP - 61
JO - Investment Management and Financial Innovations
JF - Investment Management and Financial Innovations
IS - 4
ER -