Opposites Attract: Combining Alpha Momentum and Alpha Reversal in International Equity Markets

Zaremba, Adam; Umutlu, Mehmet; Karathanasopoulos, Andreas

Abstract

The authors offer a new integrated framework to combine alpha momentum and alpha reversal into a superior investment strategy for international equity markets. Mixing both effects into a single blended alpha signal forms a stronger country and industry selection method. An equal-weighted strategy that simultaneously goes long the indexes with the highest short-term and the lowest long-term alphas and shorts the ones with the lowest short-term and highest long-term alphas yields monthly three-factor model alphas of 1.16% and 1.44% for countries and industries, respectively. The results are robust to alternative weighting schemes, the effect of trading costs, alternative alpha models, and controlling for popular return predictive variables.

Citation

Zaremba, A., Umutlu, M., & Karathanasopoulos, A. (2020). Opposites Attract: Combining Alpha Momentum and Alpha Reversal in International Equity Markets. Journal of Investing, 29(3), 38-62. https://doi.org/10.3905/joi.2020.1.120

• Journal Article Type: Article
• Online Publication Date: Apr 1, 2020
• Publication Date: 2020-04
• Deposit Date: Jan 29, 2023
• Journal: The Journal of Investing
• Print ISSN: 1068-0896
• Electronic ISSN: 2168-8613
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 3
• Pages: 38-62
• DOI: https://doi.org/10.3905/joi.2020.1.120
• Keywords: Statistical methods, factor-based models