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Physical approach to price momentum and its application to momentum strategy

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  • Choi, Jaehyung

Abstract

We introduce various quantitative and mathematical definitions for price momentum of financial instruments. The price momentum is quantified with velocity and mass concepts originated from the momentum in physics. By using the physical momentum of price as a selection criterion, the weekly contrarian strategies are implemented in South Korea KOSPI 200 and US S&P 500 universes. The alternative strategies constructed by the physical momentum achieve the better expected returns and reward–risk measures than those of the traditional contrarian strategy in weekly scale. The portfolio performance is not understood by the Fama–French three-factor model.

Suggested Citation

  • Choi, Jaehyung, 2014. "Physical approach to price momentum and its application to momentum strategy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 61-72.
    • Handle: RePEc:eee:phsmap:v:415:y:2014:i:c:p:61-72
    DOI: 10.1016/j.physa.2014.07.075
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    Cited by:

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    6. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Financial contagion in the futures markets amidst global geo-economic events," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 288-308.

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