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Generalized Momentum Asset Allocation Model

Author

Listed:
  • Piotr Arendarski

    (Poznan University of Economics)

  • Paweł Misiewicz

    (Quantitative Finance Research Group, University of Warsaw)

  • Mariusz Nowak

    (Quantitative Finance Research Group, University of Warsaw)

  • Tomasz Skoczylas

    (Faculty of Economic Sciences, University of Warsaw)

  • Robert Wojciechowski

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

In this paper we propose Generalized Momentum Asset Allocation Model (GMAA). GMAA is a new approach to construct optimal portfolio and is based on close examination of asset’s returns distribution. GMAA tries to capture certain market phenomena and use information they contain as predictors for future returns. Our model is validated using MSCI Indexes with MSCI World Index set as a benchmark. We find results rather promising as we managed to significantly reduce portfolio volatility and obtain stable path of cumulative returns of portfolio. Our model outperforms benchmark in terms of Information Ratio or Maximum Drawdown. Detailed sensitivity analysis was conducted at the end of this paper and it shows that our strategy is sensitive to a few optimization parameters thus further research may be required.

Suggested Citation

  • Piotr Arendarski & Paweł Misiewicz & Mariusz Nowak & Tomasz Skoczylas & Robert Wojciechowski, 2014. "Generalized Momentum Asset Allocation Model," Working Papers 2014-30, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2014-30
    as

    Download full text from publisher

    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP147.pdf
    File Function: First version, 2014
    Download Restriction: no
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    More about this item

    Keywords

    asset allocation; diversification; momentum; trading strategy; capital asset pricing models; returns forecasting; efficient risk and return measures;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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