Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for March 2020 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for March 2020 (Final)
1st ETF 2nd ETF 3rd ETF

Handling Reversals in Price Trend Direction

| | Posted in: Momentum Investing

What is the best way to balance crash protection and false alarms for intrinsic, also called absolute or time series, momentum strategies that are long (short) an asset when its return over a specified past interval is positive (negative)? In their November 2019 paper entitled "Momentum Turning Points", Ashish Garg, Christian Goulding, Campbell Harvey and Michele Mazzoleni investigate blending slow and fast intrinsic momentum signals with various weights on each (adding to one) to identify the best way to handle reversals in trend direction. They specify a slow (fast) signal as that derived from past 12-month (1-month) excess return. They define four market states: (1) Bull (slow and fast signals both non-negative); (2) Correction (slow signal non-negative and fast signal negative); (3) Bear (slow and fast signals both negative); and, (4) Rebound (slow signal negative and fast signal non-negative). They first consider static weights in increments of 25% for slow and fast signals. They then consider a dynamic strategy with slow and fast signal weights that differ for Correction and Rebound states as identified with monthly data. They test usefulness of the dynamic strategy by optimizing weights with historical returns and then evaluating performance of these weights out-of-sample. While focusing on the U.S. stock market, they test robustness of findings across other developed country equity markets. Using monthly excess returns for the U.S. value-weighted stock market since July 1926 and for 10 other developed stock markets since February 1980, all through December 2018, they find that:

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Login
Daily Email Updates
Filter Research
  • Research Categories (select one or more)