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Cryptocurrency market risk-managed momentum strategies

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  • Yang, Ao

Abstract

This study investigates the application of risk-managed momentum strategies, specifically the approach proposed by Barroso and Santa-Clara (2015), within cryptocurrency markets. Our analysis reveals that managing the risk of momentum significantly enhances the performance of conventional momentum strategies, increasing average weekly returns from 3.18 % to 3.47 % and annualized Sharpe ratios from 1.12 to 1.42. Notably, unlike equity markets where risk management primarily mitigates downside risks, in cryptocurrency markets, the improvement stems from augmented returns, reflecting distinct market dynamics characterized by the absence of extended momentum crashes. Robustness tests confirm the strategy's effectiveness under various conditions, including transaction costs, short-sale constraints, and across different investment horizons. These findings bridge a gap between traditional and emerging financial markets, offering practical insights for investors seeking adaptable strategies in the volatile cryptocurrency landscape. Our results highlight the economic benefits and practical applicability of incorporating risk of momentum into cryptocurrency momentum investing.

Suggested Citation

  • Yang, Ao, 2025. "Cryptocurrency market risk-managed momentum strategies," Finance Research Letters, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pa:s1544612325011377
    DOI: 10.1016/j.frl.2025.107879
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    References listed on IDEAS

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