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

Fan, Minyou; Li, Youwei; Liu, Jiadong

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%.

Citation

Fan, M., Li, Y., & Liu, J. (2018). Risk adjusted momentum strategies: A comparison between constant and dynamic volatility scaling approaches. Research in international business and finance, 46, 131-140. https://doi.org/10.1016/j.ribaf.2017.12.004

• Journal Article Type: Article
• Acceptance Date: Dec 29, 2017
• Online Publication Date: Jan 4, 2018
• Publication Date: 2018-12
• Deposit Date: Mar 19, 2019
• Publicly Available Date: Jul 5, 2019
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 46
• Pages: 131-140
• DOI: https://doi.org/10.1016/j.ribaf.2017.12.004
• Keywords: Cross-sectional momentum; Time series momentum; Momentum crashes; Volatility scaling
• Public URL: https://hull-repository.worktribe.com/output/1113455
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0275531917308322?via%3Dihub
• Related Public URLs: https://pure.qub.ac.uk/portal/en/publications/risk-adjusted-momentum-strategies-a-comparison-between-constant-and-dynamic-volatility-scaling-approaches(fec35c32-fbf8-4416-ba1a-8f1b75f94922).html
• Additional Information: This article is maintained by: Elsevier; Article Title: Risk adjusted momentum strategies: A comparison between constant and dynamic volatility scaling approaches; Journal Title: Research in International Business and Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.ribaf.2017.12.004; Content Type: article; Copyright: © 2018 Elsevier B.V. All rights reserved.
• Contract Date: Mar 19, 2019