Hedging momentum with short-term reversal

Abstract

The purpose of this dissertation is to exploit the economic benefits of managing a Momentum portfolio with Short-term reversal. Indeed, both are negatively correlated and, in the light of ex tensive literature on Momentum, their returns are contrarily influenced by crashes and previous realized volatility. This offers investors a mispriced combination of these assets which is able to improve upon the individual Sharpe ratios and reduce crash risk. The resulting strategy is robust to constrained positions and delivers a good alternative to recent methods that only focus on managing Momentum.

Date of Award	6 Feb 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Faias (Supervisor)