Research Insight - Riding on Momentum

Dec 15, 2015

Momentum, the tendency of past winners to continue to do well in the near future, is used widely in risk models, quantitative strategies and, more recently, as the basis for factor indexes aiming to replicate the performance of this pervasive factor. But the academic definition of momentum is extremely difficult to implement because it tends to lead to high volatility exposure and excessive portfolio turnover. Our approach involves selecting securities based on risk-adjusted performance and increasing rebalancing frequency only in periods of heightened market volatility. This approach has historically mitigated momentum crashes and reduced unnecessary turnover in momentum strategies.