Research On Investment Strategy Based On Momentum Risk Management

Momentum effect has been verified all over the world and momentum strategy has been effectively developed.At present,stocks,bonds,futures,commodities and most other assets in the market have different degrees of momentum effect.In the follow-up study,it was found that momentum crash also existed in the stock market.In 1932,the momentum factor of the U.S.stock market fell by 67.10%,and in 2009,the momentum factor of the U.S.stock market and other countries all showed huge losses.China was also found to have momentum crash.While using momentum strategy to gain benefits,improving strategy through momentum risk management has gradually attracted the attention of scholars.This paper studies the momentum crash and momentum strategy of China stock market by selecting the yield data of the constant component stocks of the CSI 300 index from January 2007 to March 2020,constructs the optimized momentum strategy and compares it with the standard momentum strategy,and tests whether it can effectively avoid momentum crash and obtain significant excess returns.The results show that there is A short-term momentum effect in China stock market and the phenomenon of momentum crash was found in June 2015 and March 2018.The momentum strategy is weaker than the market factor,but stronger than the market factor and book-to-market ratio factor.Compared with the traditional momentum strategy,both the momentum strategy based on trait momentum and the momentum strategy based on volatility adjustment can well reduce the loss caused by the momentum crash and significantly improve the return rate and sharpe ratio of the strategy.At the same time,the strategy performance in different market states shows that the momentum effect is closely related to the market state.The momentum effect is significant during the bull market,and it is difficult for the momentum strategy to obtain significantly positive excess returns during the bear market.The characteristic momentum strategy constructed based on volatility adjustment has higher sharpe ratio and higher rate of return than other momentum strategies,which can well reduce the loss caused by momentum crash and is the optimal investment strategy among the four momentum strategies.