Risk adjusted momentum strategies: a comparison between constant and dynamic volatility scaling approaches

Fan, Minyou and Li, Youwei and Liu, Jiadong (2017): Risk adjusted momentum strategies: a comparison between constant and dynamic volatility scaling approaches.

Abstract

We compare the performance of two volatility scaling methods in momentum strategies: (i) the constant volatility scaling approach of Barroso and Santa-Clara (2015), and (ii) the dynamic volatility scaling method of Daniel and Moskowitz (2016). We perform momentum strategies based on these two approaches in a diversified portfolio consisting of 55 global liquid futures contracts, and further compare these results to the time series momentum and buy-and-hold strategies. We find that the momentum strategy based on the constant volatility scaling method is the most efficient approach with an annual return of 15.3%.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cross-sectional momentum; Time series momentum; Momentum crashes; Volatility scaling
• Subjects: G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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