Scaling Up Market Anomalies

Avramov, Doron; Cheng, Si; Schreiber, Amnon; Shemer, Koby

doi:10.2139/ssrn.2709178

“…Stambaugh et. al (2012) and Avramov et al (2016) show that the strength of momentum profits varies over time. In addition, there is evidence that momentum in the UK exhibits a degree of cyclical behaviour (see Sarwar et.…”

Section: Survival Across Business Cyclesmentioning

confidence: 99%

“…Similarly, Clare, Sapuric and Todorovic (2010) find that exploiting momentum in UK style portfolios proves to be a profitable investment strategy for investors following style rotation strategy. More recently, Avramov, Cheng, Schreiber and Shemer (2016) investigate momentum among 15 market anomalies in the US (total accruals, net operating assets, momentum, gross profitability, book-to-market among others). They document that while the profitability of momentum in individual anomalies fades over time, a long-short trading strategy based on a combination of winner (best performing, long position) and loser (worst performing, short position) anomalies according to lagged one-month returns generate significantly positive risk-adjusted returns and outperform the benchmark.…”

Section: Introductionmentioning

confidence: 99%

“…We estimate the feasibility of our trading rule by calculating breakeven transaction costs, which represent maximum costs that investor can pay and still equalise the Sharpe ratio of the trading strategy to that of the buy and hold. Additionally, given that the strength of momentum profits varies over time (Stambaugh et al, 2012;and Avramov et al, 2016) and that UK momentum premium exhibits cyclical behaviour (Sarwar, Mateus and Todorovic, 2016), we evaluate if there are any differences in the probabilities of momentum trading across UK business cycles.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

A guide to survival of momentum in UK style portfolios

Sarwar

¹

,

Mateus

²

,

Todorović

³

2018

IJBAAF

0

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In this study we estimate the survival time of momentum in six UK style portfolio returns from October 1980 to June 2014. We utilise the Kaplan-Meier estimator, a non-parametric method that measures the probability that momentum will persist beyond the present month. This probability enables us to compute the average momentum survival time for each of the six style portfolios. Discrepancies between these empirical mean survival times and those implied by theoretical models (Random Walk and ARMA (1, 1)) show that there is scope for profiting from momentum trading. We illustrate this by forming long-only, short-only and long-short trading strategies that exploit positive and negative momentum and their average survival time. These trading strategies yield considerably higher Sharpe ratios than the comparative buy-and-hold strategies at a feasible level of transaction costs. This result is most pronounced for the long/short strategies. Our findings remain robust during the 2007/08 financial crisis and the aftermath, suggesting that Kaplan-Meier estimator is a powerful tool for designing a profitable momentum strategy.

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“…Stambaugh et. al (2012) and Avramov et al (2016) show that the strength of momentum profits varies over time. In addition, there is evidence that momentum in the UK exhibits a degree of cyclical behaviour (see Sarwar et.…”

Section: Survival Across Business Cyclesmentioning

confidence: 99%

“…We estimate the feasibility of our trading rule by calculating breakeven transaction costs, which represent maximum costs that investor can pay and still equalise the Sharpe ratio of the trading strategy to that of the buy and hold. Additionally, given that the strength of momentum profits varies over time (Stambaugh et al, 2012;and Avramov et al, 2016) and that UK momentum premium exhibits cyclical behaviour (Sarwar, Mateus and Todorovic, 2016), we evaluate if there are any differences in the probabilities of momentum trading across UK business cycles.…”

Section: Introductionmentioning

confidence: 99%

A Guide to Survival of Momentum in UK Style Portfolios

Sarwar

¹

,

Mateus

²

,

Todorović

³

2017

SSRN Journal

0

View full text Add to dashboard Cite

In this study we estimate the survival time of momentum in six UK style portfolio returns from October 1980 to June 2014. We utilise the Kaplan-Meier estimator, a non-parametric method that measures the probability that momentum will persist beyond the present month. This probability enables us to compute the average momentum survival time for each of the six style portfolios. Discrepancies between these empirical mean survival times and those implied by theoretical models (Random Walk and ARMA (1, 1)) show that there is scope for profiting from momentum trading. We illustrate this by forming long-only, short-only and long-short trading strategies that exploit positive and negative momentum and their average survival time. These trading strategies yield considerably higher Sharpe ratios than the comparative buy-and-hold strategies at a feasible level of transaction costs. This result is most pronounced for the long/short strategies. Our findings remain robust during the 2007/08 financial crisis and the aftermath, suggesting that Kaplan-Meier estimator is a powerful tool for designing a profitable momentum strategy. JEL classification: G14, G11

show abstract