Momentum Strategy,Momentum Crashes And Risk Management

Momentum strategy is one of the most widely used strategies.Since its introduction,scholars have continuously conducted research and analysis from different angles,and found that momentum strategies can obtain significant risk-adjusted returns on various major assets.With the frequent occurrence of black swan events and the accumulation of financial risks,various asset prices fluctuated violently many times,adversely affecting momentum gains,and even leading to a significant drawdown of momentum gains,which easily brought extreme risks of momentum crashes.The purpose of this paper is to test the effectiveness of momentum strategies against Chinese commodity futures market,and to propose an effective method to manage the risk of momentum crashes after judging the existence and causes of momentum crashes.In order to achieve the research goals of this article,this article uses the weekly frequency data of the domestic commodity futures market from January 7,2005 to February 7,2020,and selects 25 commodity futures varieties that were published before 2013 and have active trading volumes.Synthetic continuous contract research.First of all,the article can still continue to obtain significant risk-adjusted returns in the case of considering transaction costs,and further verifies that momentum gains come from behavioral financial reasons that lead to market inefficiencies in the short term.This market is not effective over time.The phenomenon will be gradually ironed.Secondly,it is empirically found that the phenomenon of momentum crashes in Chinese commodity futures market is due to the option-like payoffs of loser portfolios,making time-varying Beta more sensitive to market portfolio volatility,which in turn led to the crashes of momentum portfolios.Finally,this paper proposes to build a dynamic weighted momentum strategy based on the stop of the target condition to manage the risk of momentum crashes.The results show that this method effectively avoids the extreme risk caused by momentum crashes,and at the same time obtains a higher average weekly return and Sharp proportion.The innovation of this article lies in.Firstly,there is no literature in the academic circles to study the momentum crashes phenomenon of the domestic commodity futures market,and it is inconclusive as to whether there is a momentum crashes phenomenon in Chinese commodity futures market.This article enriches the existing domestic momentum crashes according to the research,there is a momentum crashes in Chinese commodity futures market.Secondly,this article explores the causes of the momentum crashes in Chinese commodity futures market.This article examines for the first time the nature of the time-varying Beta and option-like payoffs of Chinese commodity futures momentum returns,and believes that the reason for the momentum crashes is the asymmetry of the option-like payoffs of momentum portfolio.Thirdly,this paper proposes for the first time to construct a dynamic weighted momentum strategy based on target conditional downtime to solve the risk management problem of momentum crashes.