Aqr's Momentum Funds

Executive Summary Based on our research and analysis, we advocate that AQR determine through and implement the ample momentum vernacular fund. register has shown that the long only momentum funds consistently draw the food commercialize, and achieve higher go bys. Though the find of exposure as deliberate by standard passing is higher, the Sharpe ratio is also higher. This gist that the increased returns are biger than the increase in risk you are taking. This fund should be a valuable increase that will generate great interest from your customers. Analysis Looking everyplace the period from 1927 to 2011, the decorous return of the momentum portfolio (UMD) is more than double the middling return of the market premium (MKT-RF). While feel through historic data, it is also evident that the momentum supposition holds true, with the first decile transcription the final returns while the 10th decile consistently held the highest returns. When constructin g a long/short portfolio, it is important to use the highest returns (10th decile) negatively charged the lowest returns ( first decile). Any other combination will impression in lower returns. Also, the sharpe ratio increased moving from the beginning(a) decile to the 10th decile. The momentum portfolio has been relatively stable since its conception in the late 1920s.

The only times the momentum portfolio failed to beat the market was when the market was in turmoil, such as the great depression, the turn back com bubble, and the 2008 financial crisis. It is interesting to note how the momentum portfolio be haves pursuit a crash. The year after a cra! sh, when the market recovers, the momentum conjecture is almost completely reversed. The high stocks receiving the lowest returns and the low stocks receiving the highest worldwide return. This is due to the lowest performers recovering and yielding the highest returns in the succeeding(a) year. If a momentum portfolio is formed from the top 30 centile best performers minus the bottom 30 percentile (UMD3), the average return and risk are...If you want to get a unspoilt essay, order it on our website: BestEssayCheap.com

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