Residual Momentum and Volatility – Managed Portfolios : A Study on the Swedish Equity Market
Sammanfattning: In this paper, we present empirical results from the Swedish equity market when testingdifferent strategies aiming at enhancing the performance of a momentum strategy, over a timeperiod from 2000 to 2021. Similar to research conducted on other markets, we find theexistence of a momentum premium on the Swedish equity market, but with a return that is fattailed and negatively skewed. We show that forming momentum portfolios by ranking stockson the residual return instead of total return increases the Sharpe ratio and reduces the excesskurtosis and skewness. Furthermore, managing volatility by scaling the exposure to the twomomentum styles increases performance of both, but most notably for the traditionalmomentum factor. Assessing the high average returns in relation to the high turnover of theportfolios, we find it likely for the net return after accounting for transaction costs to bestatistically significant based on research on factor strategies and limits to arbitrage.
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