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.

• 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