When It Comes to Momentum, Don't Cramp My Style
This paper looks at the impact of common constraints on a long-only Momentum-based strategy. The idea is to show how these constraints drive differences in portfolio characteristics, risk and return. The analysis is geared toward helping factor-based managers gain more insight into the potentially harmful impact of portfolio constraints, which may also prove to be unnecessary. The paper also looks into the risk characteristics (other than momentum) of relatively unconstrained portfolios, to help managers understand past and future performance drivers of a momentum-tilted portfolio.
Author: Melissa R. Brown, CFA, Managing Director, Applied Research