FINANCE CA11 SPR17 Case 2: AQR's Momentum Funds

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This report provides an analysis and evaluation of three momentum-related strategies: cross-sectional momentum, value and time-series momentum. Method of analysis include finding alphas by regressin... g portfolio excess return on benchmark excess return, calculating Sharpe ratios, appraisal ratios, return volatility, commenting on their significance and running iterations on 3 different estimation windows. All three strategies were compared to the MSCI World Index, a global equity benchmark, to compare performance and find out where returns come from. Results of data analysed show that the momentum strategies performed better than the value strategy and the benchmark. The best performing portfolio was the cross-sectional momentum one, followed by the times-series, benchmark and value portfolio. To see the impact of strategy initiation date on performance we recalculated performance measures for three different time horizons. The latter adjustment showed among other things that the magnitude of the momentum effects has decreased in the restricted samples. It is also worth pointing out the significance of transaction costs and the many critical aspects of implementing momentum strategies and how these factors impact net returns [Show More]

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