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Managing the risk of momentum on the Oslo Stock Exchange

Øvergaard, Min Alexander; Haavik, Lars Christian
Master thesis
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Preliminary thesis.pdf (1.748Mb)
Risk-managed-momentum-at-OSE.xlsx (7.138Mb)
Santa-Clara.xlsx (8.463Mb)
URI
http://hdl.handle.net/11250/2579784
Date
2018
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  • Master of Science [1116]
Abstract
The concept of managing the risk of momentum trading has rendered the

notion of momentum portfolios more appealing to investors, as it addresses the

potential for devastating losses in the aftermath of periods of financial distress.

While this has been well researched on larger stock exchanges, smaller ones

have thus far been largely ignored. We examine the performance of the riskmanaged

momentum strategy as developed by Barroso & Santa-Clara (2015)

on the Norwegian market. This involves using an estimate of momentum risk

to scale exposure to the strategy, targeting constant risk over time. Maintaining

constant volatility when conducting a long-short strategy reflects what real

investors and hedge funds attempt to do, as opposed to maintaining constant

amounts invested in the long and short legs (Barroso & Santa-Clara, 2015).

Implicit in our research is a contribution to the contested hypothesis regarding

the relative profitability of momentum strategies in markets with varying

degrees of liquidity. We find that although managing the risk successfully

ïmproves the momentum strategy’s statistical properties as promised, the

momentum effect in Norway is very weak. Another caveat is that the highly

predictable risk of momentum that Barroso & Santa-Clara (2015) identified on

the larger stock exchanges is considerably less so on the Oslo Stock Exchange,

making the strategy more difficult to implement in Norway based on ex ante

information.
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2018
Publisher
Handelshøyskolen BI

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