A0567
Title: Momentum and trend-following: Combining academia and industry
Authors: Joerg Osterrieder - ZHAW (Switzerland) [presenting]
Abstract: Momentum trading strategies are thoroughly described in the academic literature and used in many trading strategies by hedge funds, asset managers, and proprietary traders. The hedge fund Man/AHL has made its internal strategy available and describes a momentum strategy for different asset classes in great detail from a practitioners point of view. Using a geometric Brownian Motion for the dynamics of the returns of financial instruments, we extensively explain the motivation and background behind each step of a momentum trading strategy. Constants and parameters that are used for the practical implementation are derived in a theoretical setting and deviations from those used by Man/ AHL are shown. The trading signal is computed as a mixture of exponential moving averages with different time horizons. We give a statistical justification for the optimal selection of the time horizons. Furthermore, we test our approach on global currency markets, including G10 currencies, emerging market currencies, and cryptocurrencies. Both a time series portfolio and a cross-sectional portfolio are considered. We find that the strategy works best for traditional fiat currencies when considering a time series based momentum strategy. This is the first comprehensive study showing both the underlying statistical reasons of how such trading strategies are constructed in the industry as well as empirical results using a large universe of currencies, including cryptocurrencies.
