Symmetry Breaking as a Control for Momentum Arbitrage

Summary

The paper applies the idea of spontaneous symmetry breaking to arbitrage modeling. It treats an arbitrage strategy as operating in a symmetry-breaking phase, with a control parameter governing the transition between arbitrage and no-arbitrage modes. The authors estimate that parameter using historical data for a momentum strategy, then use it to modify the strategy’s behavior.

The reported comparison finds that symmetry-breaking-assisted momentum performs more strongly and has a better risk measure than naive momentum in U.S. and South Korean markets. The description does not specify the control parameter’s construction, the risk metric, sample period, or performance figures, so the result cannot be evaluated in detail from this account. It also gives no information about transaction costs or out-of-sample validation. The work offers a conceptual way to condition momentum exposure, with the practical evidence and robustness still unclear.

Key ideas

• The model uses a control parameter to represent transitions between arbitrage and no-arbitrage regimes.
• The parameter is estimated from historical data for a momentum strategy.
• The enhanced strategy is reported to outperform naive momentum on performance and risk measures in two markets.
• The available description omits details needed to assess costs, robustness, and validation.

Tags

# Spontaneous symmetry breaking of arbitrage


# Spontaneous symmetry breaking of arbitrage









We introduce the concept of spontaneous symmetry breaking to arbitrage modeling. In the model, the arbitrage strategy is considered as being in the symmetry breaking phase and the phase transition between arbitrage mode and no-arbitrage mode is triggered by a control parameter. We estimate the control parameter for momentum strategy with real historical data. The momentum strategy aided by symmetry breaking shows stronger performance and has a better risk measure than the naive momentum strategy in U.S. and South Korean markets.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.