Less pain, more gain: Volatility-adjusted residual momentum in international equity markets

Adam Zaremba , Mehmet Umutlu , Alina Maydybura

Abstract

We offer a new type of momentum strategy — the volatility-adjusted residual momentum (VARMOM) — which is based on average past residuals scaled with their volatility. We demonstrate its application for international asset allocation within 51 country indexes and 888 industry portfolios from developed and emerging markets. The VARMOM trading strategy notably outperforms and subsumes a standard momentum strategy, delivering Sharpe ratios that are two to three times higher. The VARMOM is particularly strong across portfolios characterised by high limits to arbitrage and following bull markets, supporting the behavioural explanation of momentum. The results are robust to alternative portfolio construction methods as well as the inclusion of trading costs and control variables. They are also valid for several subperiods and subsamples.
Author Adam Zaremba (WZ / KIiRK)
Adam Zaremba,,
- Department of Investment and Capital Markets
, Mehmet Umutlu - Yasar University, Turkey
Mehmet Umutlu,,
-
, Alina Maydybura - University of Dubai, UAE
Alina Maydybura,,
-
Journal seriesInvestment Analysts Journal, ISSN 1029-3523, (A 20 pkt)
Issue year2018
Vol47
No2
Pages165-191
Publication size in sheets1.3
Keywords in EnglishVARMOM, residual momentum, volatility-adjusted momentum, country momentum, industry momentum, asset pricing, international investment, return predictability, equity anomalies, cross section of returns
ASJC Classification1402 Accounting; 2002 Economics and Econometrics; 2003 Finance
DOIDOI:10.1080/10293523.2018.1469290
URL https://doi.org/10.1080/10293523.2018.1469290
Languageen angielski
Score (nominal)20
Score sourcejournalList
ScoreMinisterial score = 20.0, 27-03-2020, ArticleFromJournal
Publication indicators WoS Citations = 1; Scopus SNIP (Source Normalised Impact per Paper): 2018 = 0.783; WoS Impact Factor: 2017 = 0.71 (2) - 2017=0.735 (5)
Citation count*14 (2020-09-10)
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* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.
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