Finance Seminar with Pedro Barosso, Nova School of Business and Economics
The Department of Finance is proud to announce the upcoming seminar with Pedro Barosso, Nova School of Business and Economics
Pedro Barosso will present:
Managing the Risk of Momentum
Abstract: Compared to the market, value or size risk factors, momentum has offered investors the highest Sharpe ratio. However, momentum has also had the worst crashes, making the strategy unappealing to investors with reasonable risk aversion. We find that the risk of momentum is highly variable over time and quite predictable. The major source of predictability does not come from systematic risk but from specific risk. Managing this time-varying risk virtually eliminates crashes and nearly doubles the Sharpe ratio of the momentum strategy. Risk-managed momentum is a much greater puzzle than the original version.