Market Momentum: Theory and Practice

✍ Scribed by Stephen Satchell, Andrew Grant

• Publisher: John Wiley & Sons Inc
• Year: 2020
• Tongue: English
• Leaves: 451
• Edition: 1.
• Category: Library

✦ Synopsis

A one-of-a-kind reference guide covering the behavioral and statistical explanations for market momentum and the implementation of momentum trading strategies

Market Momentum: Theory and Practice is a thorough, how-to reference guide for a full range of financial professionals and students. It examines the behavioral and statistical causes of market momentum while also exploring the practical side of implementing related strategies.

The phenomenon of momentum in finance occurs when past high returns are followed by subsequent high returns, and past low returns are followed by subsequent low returns. Market Momentum provides a detailed introduction to the financial topic, while examining existing literature. Recent academic and practitioner research is included, offering a more up-to-date perspective.

What type of book is Market Momentum and how does it serve a range of readers’ interests and needs?

• A holistic market momentum guide for industry professionals, asset managers, risk managers, firm managers, plus hedge fund and commodity trading advisors
• Advanced text to help graduate students in finance, economics, and mathematics further develop their funds management skills
• Useful resource for financial practitioners who want to implement momentum trading strategies
• Reference book providing behavioral and statistical explanations for market momentum

Due to claims that the phenomenon of momentum goes against the Efficient Markets Hypothesis, behavioral economists have studied the topic in-depth. However, many books published on the subject are written to provide advice on how to make money.  In contrast, Market Momentum offers a comprehensive approach to the topic, which makes it a valuable resource for both investment professionals and higher-level finance students.

The contributors address momentum theory and practice, while also offering trading strategies that practitioners can study.

✦ Table of Contents

Cover
Title Page
Copyright
Contents
Contributors
Introduction
CHAPTER 1 Behavioural Finance and Momentum
1.1 Introduction
1.2 The failure of risk‐based explanations
1.3 Behavioural models of momentum
1.4 Slow information diffusion
1.5 Patterns in information arrival
1.6 The 52‐week high and capital gains overhang
1.7 Institutional trading and momentum profits
1.8 Sentiment and momentum
1.9 Discussion
References
CHAPTER 2 A Taxonomy of Momentum Strategies
2.1 Introduction
2.2 Relative strength strategies
2.3 Time‐series momentum strategies
2.4 Cross‐sectional momentum strategies
2.5 Cross‐asset momentum
References
CHAPTER 3 Demystifying Time‐Series Momentum Strategies: Volatility Estimators, Trading Rules and Pairwise Correlations
3.1 Data Description
3.2 Methodology
3.3 Turnover Reduction
3.4 The Recent Underperformance of Time‐series Momentum Strategies and the Effect of Pairwise Correlations
3.5 Trading Costs Implications
3.6 Concluding Remarks
3.6 Acknowledgements
References
CHAPTER 4 Risk and Return of Momentum in Developed Equity Markets
4.1 Introduction
4.2 Definition of momentum
4.3 Simple factor portfolios
4.4 Multifactor structure
4.5 Pure factor portfolios
4.6 Empirical results: momentum performance
4.7 Empirical results: momentum risk
4.8 Diversification benefits
4.9 Summary
References
CHAPTER 5 Momentum Across Asset Classes
5.1 Measuring momentum
5.2 Framework: equity momentum and corporate credit risk
5.3 Empirical studies: momentum and credit risk
5.4 Our research on equity momentum and bond returns
5.5 Geographically bound assets
5.6 Momentum in other illiquid assets
5.7 Cross‐asset class effects of commodities
5.8 Momentum effects and taxable investors
5.9 Active management and momentum effects
5.10 Conclusions
References
CHAPTER 6 Momentum in Momentum ETFs
6.1 Introduction
6.2 Why are momentum ETFs so popular?
6.3 What is in a momentum ETF?
6.4 Which factors drive active risk for momentum ETFs?
6.5 From constrained to unconstrained strategies
6.6 Conclusions
References
CHAPTER 7 CTA Momentum
7.1 Introduction
7.2 Time‐series momentum (TSM)
7.3 Strategy return models
7.4 Time‐series momentum
7.5 TSM meets CSM with two instruments
7.6 Conclusions
7.A.1 Appendix A: Correlation parameter restrictions
7.A.2 Appendix B: Proofs of variances and covariance
References
CHAPTER 8 Overreaction and Faint Praise – Short‐Term Momentum in Contemporary Art
8.1 Introduction
8.2 Contemporary art market ecosystem
8.3 ArtForecaster data
8.4 Systematic forecasting strategies
8.5 Conclusions
References
CHAPTER 9 Volatility‐Managed Momentum
9.1 Introduction
9.2 Data and momentum portfolio construction
9.3 Volatility‐managed momentum strategies
9.4 Some potential practical issues
9.5 The best volatility measure for momentum?
9.6 Concluding remarks
References
CHAPTER 10 Theoretical Analysis of the Fama‐French Portfolios
10.1 Introduction
10.2 Strategies, notation and preliminaries
10.3 Distribution of Fama‐French factors
10.4 Fama‐French factors with sequential sorting
10.5 Conclusion
10.A.1 Proof of Lemma 1
10.A.2 Proof of Theorem 3
10.A.3 Proof of Theorem 4
References
CHAPTER 11 Exploiting the Countercyclical Properties of Momentum and other Factor Premia – A Cross‐Country Perspective
11.1 Introduction
11.2 Methodology
11.3 Alternative investment strategies
11.4 Quantifying the utility of risk premia strategies
11.5 Summary and conclusions
11.5 Acknowledgement
References
CHAPTER 12 Time‐Series Variation in Factor Premia: The Influence of the Business Cycle
12.1 Introduction
12.2 Factors and factor rotation
12.3 Factors and the business cycle
12.4 Data and summary statistics
12.5 Empirical results
12.6 Conclusions
12.A.1 Derivation of cash‐flow news series
12.A.2 US leading economic indicator and global risk appetite indicator
12.A.3 Dynamic multifactor strategy: extension to other market segments and regions
12.3 Acknowledgements
References
CHAPTER 13 Where Goes Momentum?
13.1 Introduction
13.2 Momentum strategies
13.3 Data
13.4 Method
13.5 Results
13.6 Risk‐adjusted after‐transaction costs performance of time‐series and cross‐sectional momentum strategies
13.7 Conclusions
References
CHAPTER 14 Time‐Series Momentum in Credit: Machine Learning Approach
14.1 Introduction
14.2 The philosophy of artificial intelligence
14.3 Vanilla time‐series momentum
14.4 Generalized linear models (GLM) – Lasso, Ridge and Elastic Net
14.5 Determining optimal hyper‐parameters via cross‐validation
14.6 Results: generalized linear models
14.7 Random forests
14.8 Neural networks
14.9 Results and comments
14.10 Conclusion
References
CHAPTER 15 Momentum and Business Cycles
15.1 Introduction
15.2 Momentum, business cycles and realised market return
15.3 Momentum and expected market risk premiums
15.4 Momentum, overconfidence and sentiment
15.5 Summary and conclusions
15.5 Acknowledgement
References
CHAPTER 16 Momentum as a Fundamental Risk Factor
16.1 Introduction
16.2 Defining momentum as a strategy
16.3 A new framework
16.4 From realised returns to forecast returns
16.5 Examining behaviour
16.6 The momentum trader as a bystander
16.7 Extending the model
16.8 Short‐term versus long‐term investors
16.9 The impact of the short‐term investor
16.10 The momentum risk premium
16.11 The Apollo asset pricing model
16.12 Momentum alpha
16.13 Beta momentum
16.14 Beta signal
16.15 Momentum strategies
16.16 Results
16.17 Analysis of results
16.18 Conclusions
References
CHAPTER 17 Momentum, Value and Carry Commodity Factors for Multi‐Asset Portfolios
17.1 Introduction
17.2 Methodology and key research questions
17.3 Commodity factors – insights from the historical data
17.4 Wealth accumulation strategies and rebalancing considerations
17.5 Wealth decumulation strategies
17.6 Long/short versus long only strategies
17.7 Completion portfolios versus maximum Sharpe ratio portfolios
17.8 Conclusions
17.A.1 Momentum factor
17.A.2 Carry factor
17.A.3 Value factor
17.A.4 From commodity factors to factor portfolios
17.A.5 Factor construction
References
Index
EULA