Hybrid Strategies Of Size,BM And Momentum

Momentum strategy had turned from being popular all over the world in the last century 80s into facing crashes in recent decades,which shocks the world.So scholars have put themselves into the researches of "is momentum effect dead?" and "how to save the momentum effect?".Momentum crashes is a black swan event,which means although momentum strategy has high return and high Sharpe ratio but will often suffer reversal.This event results from the negative skewness and high kurtosis of momentum strategy.The momentum strategy is countercyclical to the market state.When the market turns from a bull into a bear,the return of momentum strategy will decrease deeply.Motivated by the negative correlations between the momentum and BM premiums(size premiums),this paper develops hybrid investment strategies,incorporating the size/BM effect into momentum,to improve the performance of prevailing momentum strategies.Evidence shows,hybrid Strategies have a high return,a higher Sharpe ratio,a lower standard deviation and a lower skewness than raw momentum strategies,which is supported by 23 developed stock markets.Even in developed stock market,hybrid Strategies obtain an excellent result.