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The analytics of momentum

Author

Listed:
  • Oh Kang Kwon

    (The University of Sydney)

  • Stephen Satchell

    (The University of Sydney
    University of Cambridge)

Abstract

Momentum-based investment strategies are widely used by practitioners, and their empirical properties have attracted considerable research interest from academics. This paper discusses some theoretical results on cross-sectional momentum, time-series momentum, and relative strength portfolio returns. We use simple examples to explain their relevance to both academics and practitioners alike despite the differences in their motivation and focus. We examine in detail the special case where there are only two underlying assets, and show analytically that many of the phenomena noted by empirical researchers have mathematical explanations.

Suggested Citation

  • Oh Kang Kwon & Stephen Satchell, 2019. "The analytics of momentum," Journal of Asset Management, Palgrave Macmillan, vol. 20(6), pages 433-441, October.
    • Handle: RePEc:pal:assmgt:v:20:y:2019:i:6:d:10.1057_s41260-019-00130-8
    DOI: 10.1057/s41260-019-00130-8
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    References listed on IDEAS

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    1. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 175-205.
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    3. Narasimhan Jegadeesh & Sheridan Titman, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, April.
    4. Moskowitz, Tobias J. & Ooi, Yao Hua & Pedersen, Lasse Heje, 2012. "Time series momentum," Journal of Financial Economics, Elsevier, vol. 104(2), pages 228-250.
    5. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. "Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
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    7. Kwon, Oh Kang & Satchell, Stephen, 2018. "The distribution of cross sectional momentum returns," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 225-241.
    8. Reinaldo B. Arellano‐Valle & Adelchi Azzalini, 2006. "On the Unification of Families of Skew‐normal Distributions," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 33(3), pages 561-574, September.
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    Cited by:

    1. Sabri Boubaker & Lechuan Du & Zhenya Liu, 2022. "Industry momentum with correlation consolidation: evidence from China," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 73-82, February.

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    More about this item

    Keywords

    Cross-sectional momentum; Time-series momentum; Relative strength; Cross-sectional volatility;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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