Robustness tests of residual momentum strategies

Abstract

Contrary to conventional momentum, the literature treating the subject of residual momentum is very narrow. The aim of this thesis is to contribute to the literature by first using pricing models that have recently been proposed and were not available at the time previous researchers published their work. Second, by adopting the investor’s point of view with limited access to the market and its instruments, especially the ability to short sell stocks. This second choice is of particular interest for portfolio managers who sometimes have limited choices regarding the instruments they are allowed to use. Following the analysis, it appears residual momentum outperforms its conventional counterpart in every aspect scrutinized in this research. It seems there is no reason for an investor who is currently using the conventional momentum to not switch, at least partially, towards a residual momentum strategy.