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Physical approach to price momentum and its application to momentum strategy

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  • Jaehyung Choi

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.

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  • Jaehyung Choi, 2012. "Physical approach to price momentum and its application to momentum strategy," Papers 1208.2775, arXiv.org, revised Aug 2014.
  • Handle: RePEc:arx:papers:1208.2775
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    Cited by:

    1. Choi, Jaehyung & Kim, Young Shin & Mitov, Ivan, 2015. "Reward-risk momentum strategies using classical tempered stable distribution," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 194-213.

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