A note on the fractional momentum strategy

Abstract

ABSTRACT The momentum strategy has been existent for a long time and under numerous versions all of which is based on some form of the past return. It was noted recently that this metric of taking the difference of two prices might be a too stringent transformation to achieve stationary. For this matter, a momentum strategy that is not based on simple past return was proposed, called fractional momentum strategy, that retains some memory in the price series. Empirical results have demonstrated significant returns improvement of this strategy over the traditional one albeit under weekly rebalancing. This article investigates the applicability of the strategy under more realistic rebalancing frequencies and finds that the strategy performs inferior to the traditional momentum strategy as rebalancing frequency is decreased.