The exhibits of this page are of proof-of-concept tests that were run in order to explore the efficacy of a modified momentum strategy that avoids losses during bear markets and panics by resorting to cash whenever recent monthly returns have been exceeded by the returns on cash. All data have been subjected to vigorous out-of-sample testing and other analyses that refute the idea that the results could easily be due to chance. Of interest, this working paper which explains the technical details. Strategy parameters were optimized over a 10-yr trailing period. Where equal weighting is indicated, as opposed to capitalization weighting, that brought about the associated sky-high benchmark returns. The working paper shows that a momentum-exploiting scheme that does not include the element of resorting to cash during downturns tends to not fare as well with currently-traded securities. That disappointment was the impetus for the development of the repurposed shrinkage estimator approach, with which much better performance was obtained. See “Market Risk Avoidance Overview” under the Performance menu.



Momentum & Shiller's S&P Composite— from the 19th Century (Dividends Reinvested; Cash Resort)

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Performance Summary

This portfolio is dynamically managed, holding positions in S&P_Composite and sometimes in as a risk-off resort. Dividends are reinvested.

Scheme Total
Trades/Month
Annualized Return (%)? Sharpe Ratio?
Traded Portfolio 3 11.5 0.72
Benchmark minimal 9.1 0.34

The raw data are from Professor Robert J. Shiller's website. With the strategy as pursued here there is a resort to cash when the trailing momentum of the composite falls below that of cash. The composite is capitalization-weighted. Benchmark: buy-and-hold.

Momentum & French's 10 Industrial Groups (Dividends Reinvested; Cash Resort)

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Performance Summary

This portfolio is dynamically managed, holding positions in indu10_Durbl, indu10_Enrgy, indu10_HiTec, indu10_Hlth, indu10_Manuf, indu10_NoDur, indu10_Other, indu10_Shops, indu10_Telcm, and indu10_Utils and sometimes in as a risk-off resort. Dividends are reinvested.

Scheme Total
Trades/Month
Annualized Return (%)? Sharpe Ratio?
Traded Portfolio 15 22.9 0.78
Benchmark minimal 14.1 0.47

The raw data are from Professor Kenneth R. French's website. Cash is resorted to here when the trailing momentum of an industry group falls below that of cash. There are ten equally-weighted industry groups in all. Benchmark: 1/N rebalanced monthly.

Momentum & French's Hi E/P Decile (Dividends Reinvested; Cash Resort)

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Performance Summary

This portfolio is dynamically managed, holding positions in e-p_Hi_10 and sometimes in as a risk-off resort. Dividends are reinvested.

Scheme Total
Trades/Month
Annualized Return (%)? Sharpe Ratio?
Traded Portfolio 4 22.0 1.11
Benchmark minimal 18.3 0.59

The raw data are from Professor Kenneth R. French's website. Cash is the resort here when the trailing momentum of e-p_Hi_10 falls below that of cash, e-p_Hi_10 being the equal-weight decile of the highest earnings-to-price ratios. Benchmark: buy-and-hold.