Momentum Has Its Moments

By Santa-Clara Pedro and Barroso Pedro
Working Paper (2012)

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Abstract

Compared to 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 quite 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.

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Please cite the paper as follows:

Santa-Clara P. and Barroso P. (2012) Momentum Has Its Moments. Working Paper.

See paper