The Impact of Momentum Factors on Multi Asset Portfolio

Achim Backhaus () and Aliya ZHAKANOVA Isiksal ()
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Achim Backhaus: Hauck & Aufhaeuser Privatbankiers.
Aliya ZHAKANOVA Isiksal: Girne American University, N. Cyprus, via Mersin 10 Turkey.

Journal for Economic Forecasting, 2016, issue 4, 146-169

Abstract: This article examines a global momentum-based allocation strategy across a broad range of asset classes. It is necessary to break away from a fixed asset allocation because of these unusual and unforeseen market movements, like the tech bubble during the late 1990s and the financial market crisis in 2008. With the dramatic decline in value across all asset classes, the neoclassical capital market theory lost its reputation. This research shows that a dynamic asset allocation process offers an attractive risk-return profile. Furthermore, this work seeks to demonstrate that the classical diversification is not appropriate and in a multi-asset portfolio, asset classes should be managed dynamically. The predictive power of the factors, absolute and relative momentum, is evaluated and analysed in a multi asset context. The data history ranges from 1992 to 2015. The calculations are based on the momentum of various equity markets (World, Emerging Markets, REIT`s), government bonds (US- Treasuries), foreign currencies (JPY/USD, EUR/USD) and commodities (energy, industrial metals, precious metals, agricultural commodities and livestock). Absolute and relative momentum portfolios are constructed using those three asset classes (? ??? ) that present the highest relative or absolute monthly ex-post return within th entire investment universe (? ??? ). The research indicates that both absolute and relative momentum strategies are suitable approaches for constructing and managing high performing multi-asset portfolios, especially it was proved by the outperformance of the portfolios during “dot com” bubble, financial crises of 2008.

Keywords: factor allocation; momentum; multi-asset; portfolio theory; dynamic asset allocation. (search for similar items in EconPapers)
JEL-codes: F21 F37 G12 G17 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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