A fund manager has claimed that the momentum factor behind share price movements can be enhanced by the use of systematic timing.

Fund manager NN Investment Partners (NN IP) said it has found a strong momentum factor in market returns across a range of asset classes, including equities, currency and commodities, but with occasional crashes and bouts of volatility.

NN IP head of automated intelligence (AI) equity, Tjeerd van Cappelle, said that momentum crashes often followed market rebounds after a decline, so his team developed a strategy for dynamic momentum timing using the Chicago Board Options Exchange Volatility Index (VIX), which is also known as the fear index. “It measures the implied volatility of S&P 500 index options over the next 30-day period. A level below 20 is generally considered to be normal, while a reading greater than 30 implies a high level of investor fear. We chose a midpoint of 25 as the threshold for the timing of industry momentum,” commented van Capelle.

By using a timing strategy based in the VIX index, van Capelle said it was possible to boost returns from an industry momentum strategy from 6.1% to 7.8% a year, with a higher information retain. This meant that the AI approach could systematically harvest the alpha generated as a result of industry momentum.


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Published: April 1, 2019
Home » Timing momentum with Automated Intelligence pays off

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