Science or scientism? On the momentum illusion
Pysyvä osoite
Kuvaus
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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
1614-2446
Aihealue
Kausijulkaisu
Annals of Finance
OKM-julkaisutyyppi
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
