Risk Adjusted Momentum Strategies: A Comparison between Constant and Dynamic Volatility Scaling Approaches
Research in International Business and Finance, Volume 46, December 2018, Pages 131-140
22 Pages Posted: 28 Nov 2017 Last revised: 17 Mar 2023
Date Written: November 13, 2017
Abstract
We compare the performance of two volatility scaling methods in momentum strategies: (i) the constant volatility scaling approach of Barroso and Santa-Clara (2015), and (ii) the dynamic volatility scaling method of Daniel and Moskowitz (2016). We perform momentum strategies based on these two approaches in an asset pool consisting of 55 global liquid futures contracts, and further compare these results to the time series momentum and buy-and-hold strategies. We find that the momentum strategy based on the constant volatility scaling method is the most efficient approach with an annual return of 15.3%.
Keywords: Cross-sectional momentum, Time series momentum, Momentum crashes, Volatility scaling
JEL Classification: G11, G12, G13
Suggested Citation: Suggested Citation