Optimal Dynamic Momentum Strategies

• 成果类型: Article
• 署名作者: Li, Kai; Liu, Jun
• 署名单位: Macquarie University; Southwestern University of Finance & Economics - China; University of California System; University of California San Diego
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2021.2254
• 发表日期: 2022
• 关键词: cross-section; PORTFOLIO POLICIES; mean reversion; STOCK; return; RISK; time; consumption; predictability; components

摘要

We explicitly solve for the optimal dynamic trading strategy between a riskless asset and a risky asset with momentum. The optimal portfolio weight depends not only on the momentum, as in Merton???s framework, but also on the historical price path; this contrasts with Merton. Because of their path dependence, optimal portfolio weights have a wide distribution for a given level of momentum; for example, investors may short the risky asset if it has rebound price paths but leverage if it has hump-shaped price paths. This effect tends to be the most significant after large price swings. Path dependence is solved with explicit formulas and presented with heuristic statistics.