We study the asset-allocation consequences of momentum in a complete-markets setting starting from a novel continuous-time model in which the state variable is a weighted average of current and past returns on stocks. We isolate and discuss three clear effects of momentum on the optimal demand for stocks: the speculative effect, the conditional-hedge effect, and the unconditional-hedge effect.
Understanding and exploiting momentum in stock returns
SBUELZ, Alessandro
2006-01-01
Abstract
We study the asset-allocation consequences of momentum in a complete-markets setting starting from a novel continuous-time model in which the state variable is a weighted average of current and past returns on stocks. We isolate and discuss three clear effects of momentum on the optimal demand for stocks: the speculative effect, the conditional-hedge effect, and the unconditional-hedge effect.
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