Evaluating the Effectiveness of the Momentum Strategy for Responsible Investment in the Russian Stock Market

Danila Ovechkin,Natalia Boldyreva,Liudmila Reshetnikova

doi:10.1051/shsconf/20219302020

Abstract

In modern conditions, the integration of ESG-criteria into investment decisions of asset managers is considered as a key factor in sustainable economic development. We examine the effectiveness of the Momentum-ESG strategy based on the Responsibility and Openness Index in comparison with the Momentum strategy, which is based on the Moscow Exchange Broad Market Index, since December 2011 to December 2020. We propose an algorithm for integrating ESG criteria into momentum strategy. We select "winners" and "losers" stocks based on their monthly return. The Momentum-ESG strategy has a high Sharpe ratio for a time horizon of 12 months, the Momentum strategy - for a time horizon of 6 months. The testing of the Momentum-ESG strategy shows its greater efficiency in terms of the Sharpe ratio compared to the Momentum strategy, which does not take into account the ESG-factors, in the investing period.

Highlights

The modern world trend in the economic sphere is associated with the creation of conditions for achieving long-term sustainable efficiency of the country's economy
We examine the effectiveness of a momentum strategy that takes into account ESG-criteria in the Russian stock market
These strategies vary in time horizons of past returns

Summary

Introduction

The modern world trend in the economic sphere is associated with the creation of conditions for achieving long-term sustainable efficiency of the country's economy. The global community links sustainable development including responsible investment. It is based on ESG-factors: environmental, social, corporate governance. This involves integrating ESG criteria into the investment business. Integration of the ESG into the field of asset management leads to an assessment of their effectiveness in terms of broader impact on society. This does not negate the consideration of risk and investment returns factors. The sustainable development goals assume that investment in companies can only be profitable in the long term if society develops in an equitable and sustainable manner. The modern challenge is the combination of high efficiency of investment strategies with a responsible investment

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