Secondly, the current bull market has been one of the longest in history, so there have also been no opportunities
for absolute momentum profits.
His research introduced the investment world to dual momentum, which combines relative strength price momentum with trend
following absolute momentum.
Another
reason absolute momentum has not been as well received may be its tracking error, especially during bull markets.
His research introduced the investment world to dual momentum, which combines relative strength price momentum with trend -
following absolute momentum.
Another
reason absolute momentum has not been as well received may be its tracking error, especially during bull markets.
I mention there that I determine
absolute momentum using only the S&P 500 index, since the U.S. leads world equity markets.
But in bull markets, whipsaw losses and trading lags can constrain the performance
of absolute momentum portfolios.
In order to remedy this situation, we constructed rules - based, benchmark models using both relative and
absolute momentum applied to market indices.
'', studied long / short
absolute momentum in U.S. stocks from 1927 to 2014 and in international stocks since 1975.
'', studied long /
short absolute momentum in U.S. stocks from 1927 to 2014 and in international stocks since 1975.
Antonacci states that «relative momentum looks at price strength with respect to other assets,
while absolute momentum looks for an asset's own positive excess return over a given look back period.»
Even
though absolute momentum may lag behind during prolonged bull markets, we see that it gives attractive long - run results compared to buy and hold on a risk - adjusted basis.
I go back to 1927 when looking at U.S. equities with
absolute momentum where international stock index data is not needed.
The dual momentum model uses relative momentum to select the best performing model assets and
incorporates absolute momentum as a filter to invest in cash if the excess return of the selected asset over cash is negative.
As discussed in Gary Antonacci's Dual Momentum book, we can first apply
absolute momentum based on the US stock market (e.g. S&P 500 TR) and assuming the excess return over the risk free rate is positive, we use relative momentum to choose between US equity and international equity.
In order to remedy this situation, we constructed rules - based, benchmark models using both relative and
absolute momentum applied to market indices.
Usingeasily understood examples and historical research findings, Gary will show howrelative strength momentum with indices can enhance investment returns, while trend -
following absolute momentum can dramatically decrease portfolio risk exposure.
Rapach and Strauss and Zhou (2013) find that the US stock market leads the world markets even at the monthly frequency, so the supported options include specifying a single asset to be used
for absolute momentum.
Absolute momentum can reduce downside exposure as well enhance returns.
Absolute momentum is known to outperform in bear markets.
Based on the evidence above, if I had to choose between relative and
absolute momentum, I would choose absolute momentum because of its risk - reducing characteristics.
This is
the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk - adjusted returns.
In addition, ETFs must be ranked above the cash ETF SHY in order to be included in the portfolio, similar to
the absolute momentum strategy I profiled here.
There are numerous indicators on the sheet, including long - term moving averages (both 10 month and 200 day), momentum, and
absolute momentum (i.e. TLT, VTI, and GLD returns versus SHY).
If the return of SPY is greater than BIL (
absolute momentum), go 100 % long either SPY or EFA, depending on which has the highest return (relative momentum).
Combining absolute and relative momentum means a mutual fund outperforms a risk - free asset class such as cash in addition to outperforming all of the other asset classes in the portfolio Thus, for the purposes of this test I added a short - term treasury fund to each portfolio to represent a risk - free asset and to act as a comparison point for
absolute momentum.
In addition, ETFs must be ranked above the cash - like ETF (SHY) in order to be included in the portfolio, similar to
the absolute momentum strategy I profiled here.