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Optimal Dynamic Momentum Strategies
| Content Provider | Scilit |
|---|---|
| Author | Li, Kai Liu, Jun |
| Copyright Year | 2017 |
| Description | Journal: SSRN Electronic Journal Even though momentum in asset returns has been widely documented, few papers study the optimal dynamic momentum strategy. This is probably due to the fact that the return process for momentum is inherently non-Markovian and, therefore, the Merton's (1971) framework does not apply. In this paper, we explicitly solve for the optimal dynamic strategy between a riskless asset and a risky asset with momentum. The optimal portfolio weight depends not only on state variables that characterize the expected return (momentum in our paper) as in Merton's model, but also on historical price paths, unlike in Merton's model. For example, for a rebound path with positive momentum, a myopic investor will have long position in the momentum asset; while our strategic investor may short the asset, effectively home-making an asset with return reversal. The outperformance of the optimal strategy over the myopic strategy is most significant during extreme market periods (characterized by substantial up and down price movements), which occur more often when momentum exists. |
| Related Links | https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp370.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3201441 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.2746561 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2017-01-01 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal Optimal Trading Strategy |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
