Science or scientism? On the momentum illusion

Springer Nature
Artikkeli
vertaisarvioitu
Article
Osuva_Grobys_2024.pdf - Lopullinen julkaistu versio - 1.1 MB

Kuvaus

© The Author(s) 2024. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
This study explores the risk of the traditional momentum strategy in terms of its realized variance using various data frequencies. It is shown that momentum risk is infinite regardless of the data frequency, implying that (a) t-statistics for this strategy do not exist, (b) correlation-based metrics such as Sharpe ratios do not exist either, and (c) the momentum premium is not observable in reality. It is further shown that the time-honored lognormal distribution is unable to accurately model extreme events observed at various variance data frequencies. Finally, it is shown that the well-known effect of time aggregation does not work for this investment vehicle. Hence, the study is forced to conclude that momentum stories have no valid foundation for their claims.

Emojulkaisu

ISBN

ISSN

1614-2454
1614-2446

Aihealue

Kausijulkaisu

Annals of Finance

OKM-julkaisutyyppi

A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä