Application Of Absolute Momentum In Portfolio Management

Since the 1970 s, the efficient market hypothesis is put forward, the researchers for the stock market is valid has been very concerned about this problem. However, the stock market some of the findings by visions brought serious challenges to the efficient market hypothesis.A growing body of research suggests that the stock market does exist the stock price momentum. The discovery of the Stock prices momentum, make the traditional financial theory is facing great challenge, because of the existence of the Stock prices momentum means that the stock market is effective. However, if you can make good use of the stock price momentum, we can better understand the market price behavior, so as to achieve the purpose of more effective manage their investment. The momentum effect on stock prices in the securities market in many countries has also been verified. Domestic scholars have done the related empirical studies, but the academic circles in China stock market momentum research mostly focused on the test whether there is the momentum effect in Chinese stock market.There is a considerable body of research on relative strength price momentum but much less on absolute momentum, also known as time series momentum.In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter- the formation, or look back, period. We then examine the reward, risk, and correlation characteristics of absolute momentum applied to stocks, bonds, and real assets. Finally, we apply absolute momentum to a 60-40 portfolio and a simple risk parity strategy. We showed absolute momentum can be effectively applied in asset management, as well as the absolute momentum as a kind of easy to implement rules method has very important value. And absolutely has great momentum as a separate program trading trend tracking potential.