Positional momentum and liquidity management; a bivariate rank approach

Akram Panahidargahloo

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: This paper introduces a new positional momentum management strategy based on the expected future ranks of asset returns and trade volume changes predicted by a bivariate Vector Autoregressive (VAR) model. The new method is applied to a dataset of 1330 stocks traded on the NASDAQ between 2008 and 2016. It is shown that return ranks are correlated with their own past values and the current and past ranks of trade volume changes. This results leads to a new expected positional momentum strategy providing portfolios of predicted winners, conditional on past ranks of returns and volume changes. This approach further extends to positional liquidity management. The expected liquid positional strategy selects portfolios of stocks with the strongest realized or predicted increase in trading volume. These new positional management strategies outperform the standard momentum strategies and the equally weighted portfolio in terms of average returns and Sharpe ratio.

Keywords: Positional momentum strategy; Gaussian ranks; Panel VAR model; Positional momentum portfolio; Positional liquid portfolio (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819302232

DOI: 10.1016/j.najef.2019.101133

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