We are able to improve upon a traditional momentum strategy, by focusing on the firm-specific component of stock returns. This residual momentum strategy not only lowers the exposures to the risk factors, but also reduces the volatility of the strategy with about 50%, resulting in a substantially higher Sharpe ratio. We find that our results are robust to changes in the formation and holding period of the strategy, the estimation window, the specification of the factor model, and the formation of subsamples based on liquidity and credit rating.
Disclaimer
The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view more information.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.
By clicking Proceed I confirm that I am a professional investor and that I have read, understood and accept the terms of use for this website.
17-08-2012 · Research
Residual Equity Momentum for Corporate Bonds
It is well documented that equity momentum has predictive power for corporate bond returns. We show that an equity momentum strategy applied to corporate bonds exhibits significant time-varying exposures to common equity and bond risk factors. The strategy thus bets on the persistence of these factor returns.
Daniël Haesen
Portfolio Manager
Patrick Houweling
Head of Quant Fixed Income
Authors
Top keywords
