Reward-Risk Momentum Portfolios Using Tempered Stable Distributions

Summary

The document describes momentum portfolios ranked with reward-risk measures derived from the classical tempered stable distribution. It compares these portfolios with traditional momentum across asset classes and markets, assessing returns alongside volatility, value at risk, conditional value at risk, maximum drawdown, and downside-tail behavior.

The reported pattern is that lower-volatility reward-risk portfolios outperform traditional momentum and show milder downside risk, including thinner downside tails. Their factor-neutral returns are described as statistically significant, with much of their performance unexplained by the Carhart four-factor model. Similar patterns appear across the ranking baskets within the portfolios. The excerpt does not provide market coverage, sample periods, implementation details, or numerical estimates, so it does not establish how robust the results are to costs or alternative test designs.

Key ideas

• The ranking criterion combines reward and risk using a classical tempered stable distribution.
• Reward-risk momentum portfolios are reported to outperform traditional momentum across the studied markets and asset classes.
• The alternatives show lower volatility, lower standard risk measures, and thinner downside tails.
• Their factor-neutral returns are reported as statistically significant and largely unexplained by the Carhart four-factor model.
• The excerpt omits sample periods, numerical results, and transaction-cost details.

Tags

# Reward-risk momentum strategies using classical tempered stable distribution


# Reward-risk momentum strategies using classical tempered stable distribution









We implement momentum strategies using reward-risk measures as ranking criteria based on classical tempered stable distribution. Performances and risk characteristics for the alternative portfolios are obtained in various asset classes and markets. The reward-risk momentum strategies with lower volatility levels outperform the traditional momentum strategy regardless of asset class and market. Additionally, the alternative portfolios are not only less riskier in risk measures such as VaR, CVaR and maximum drawdown but also characterized by thinner downside tails. Similar patterns in performance and risk profile are also found at the level of each ranking basket in the reward-risk portfolios. Higher factor-neutral returns achieved by the reward-risk momentum strategies are statistically significant and large portions of the performances are not explained by the Carhart four-factor model.

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