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Buy high, sell higher

Stenberg, Filip LU (2023) NEKN01 20231
Department of Economics
Abstract
Despite the tempting potential for attractive profits presented by a momentum strategy, it
encounters two primary challenges. First, there are infrequent, yet significant losses when the
market is imposed by high volatility. Second, the strategy incurs high turnover costs due to
the constant rebalancing of the portfolio. To mitigate these issues, this paper implements
strategies for volatility timing onto momentum portfolios together with cost management
schemes. The goal is to effectively manage and lower the impact of volatility within the
context of the strategy. Additionally, the study seeks to investigate if volatility strategies
stand the potential of strengthening momentum profits. Our findings demonstrate that these
... (More)
Despite the tempting potential for attractive profits presented by a momentum strategy, it
encounters two primary challenges. First, there are infrequent, yet significant losses when the
market is imposed by high volatility. Second, the strategy incurs high turnover costs due to
the constant rebalancing of the portfolio. To mitigate these issues, this paper implements
strategies for volatility timing onto momentum portfolios together with cost management
schemes. The goal is to effectively manage and lower the impact of volatility within the
context of the strategy. Additionally, the study seeks to investigate if volatility strategies
stand the potential of strengthening momentum profits. Our findings demonstrate that these
strategies lower overall risk by descaling the portfolio ahead of turbulent market conditions
and also result in remarkably increased returns for the WML (winner-minus-loser) portfolios.
However, since momentum trading is associated with high-volume trading, a cost
management scheme is encouraged. By minimizing transaction costs and reducing the impact
of high-volume trading, an investor can retain a larger portion of their gains. (Less)
Please use this url to cite or link to this publication:
author
Stenberg, Filip LU
supervisor
organization
course
NEKN01 20231
year
type
H1 - Master's Degree (One Year)
subject
keywords
Momentum, volatility timing, cost management scheme
language
English
id
9119649
date added to LUP
2023-09-12 15:38:37
date last changed
2023-09-12 15:38:37
@misc{9119649,
  abstract     = {{Despite the tempting potential for attractive profits presented by a momentum strategy, it
encounters two primary challenges. First, there are infrequent, yet significant losses when the
market is imposed by high volatility. Second, the strategy incurs high turnover costs due to
the constant rebalancing of the portfolio. To mitigate these issues, this paper implements
strategies for volatility timing onto momentum portfolios together with cost management
schemes. The goal is to effectively manage and lower the impact of volatility within the
context of the strategy. Additionally, the study seeks to investigate if volatility strategies
stand the potential of strengthening momentum profits. Our findings demonstrate that these
strategies lower overall risk by descaling the portfolio ahead of turbulent market conditions
and also result in remarkably increased returns for the WML (winner-minus-loser) portfolios.
However, since momentum trading is associated with high-volume trading, a cost
management scheme is encouraged. By minimizing transaction costs and reducing the impact
of high-volume trading, an investor can retain a larger portion of their gains.}},
  author       = {{Stenberg, Filip}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Buy high, sell higher}},
  year         = {{2023}},
}