Original paper
Abstract
Russell style indexes exhibit significant momentum, particularly after medium term out- and underperformance. The existence of this momentum produces a diversified, index-based low-cost means to exploit momentum by incorporating relative style index performance into tactical allocation strategies. Such style index momentum trading strategies have outperformed on both a raw and risk-adjusted return basis, with the long minus short portfolio generating an average 9.25% annual return over the 34-year period analyzed. Although the excess returns vary, they are robust through time and after controlling for potentially confounding effects. Additionally, the returns are not driven by any single style index and portfolio reconstruction is, on average, required every six months.
Keywords:Â Momentum, Style Investing
Trading rules
- Use six Russell ETFs that depict different equity styles.
- Monthly, determine the one-year momentum for each of these styles.
- Adopt a long position on the style with the strongest momentum and a short position on the one with the weakest.
- Adjust the portfolio composition on a monthly basis.
Python code
Backtrader
import backtrader as bt
class MomentumStyleRotation(bt.Strategy):
params = (
("momentum_period", 12),
)
def __init__(self):
self.etfs = self.datas
self.momentum = [bt.indicators.Momentum(e, period=self.params.momentum_period) for e in self.etfs]
def next(self):
long_etf = max(zip(self.momentum, self.etfs), key=lambda x: x[0][0])
short_etf = min(zip(self.momentum, self.etfs), key=lambda x: x[0][0])
for etf in self.etfs:
if etf == long_etf[1]:
self.order_target_percent(etf, target=1)
elif etf == short_etf[1]:
self.order_target_percent(etf, target=-1)
else:
self.order_target_percent(etf, target=0)
if __name__ == "__main__":
cerebro = bt.Cerebro()
# Add six Russell ETFs data feeds
for etf_code in ["ETF1", "ETF2", "ETF3", "ETF4", "ETF5", "ETF6"]:
data = bt.feeds.YahooFinanceData(dataname=etf_code, fromdate="2000-01-01", todate="2021-12-31")
cerebro.adddata(data)
cerebro.addstrategy(MomentumStyleRotation)
cerebro.broker.setcash(100000)
cerebro.broker.setcommission(commission=0.001)
cerebro.run()