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Momentum in the Indian Equity Markets: Exploring Positive Convexity and Alpha Generation

Last Updated on 10 February, 2024 by Rejaul Karim

Unraveling the dynamics of momentum in the Indian equity markets, “Momentum in the Indian Equity Markets: Positive Convexity and Positive Alpha” by Sonam Srivastava, Gaurav Chakravorty, and Mansi Singhal, delves into effective momentum strategies across liquid equity futures.

Released on March 18, 2019, and revised on April 23, 2019, the research navigates through various look-back periods, from quarterly and weekly to granular intervals, assessing the persistence of returns. Evaluating a comprehensive universe of liquid equity instruments, the study scrutinizes momentum at different frequencies—daily and intraday. Intriguingly, at the optimal horizon, the research unveils momentum strategies as a source of uncorrelated alpha in the Indian context.

Employing active risk-budgeting for portfolio construction, the study hints at the potential outperformance of momentum strategies compared to mean-variance optimization, promising insights into tactical asset allocation and quantitative portfolio management against the backdrop of international financial markets and evolving market efficiency.

Abstract Of Paper

Here you can download the PDF and original paper of Momentum in the Indian Equity Markets: Positive Convexity and Positive Alpha.

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Author

Sonam Srivastava
Wright Research

Gaurav Chakravorty
Qplum

Mansi Singhal
Qplum

Conclusion

In conclusion, the investigation into momentum strategies in the Indian equity markets has brought forth compelling revelations. Through meticulous evaluation across diverse look-back periods and data frequencies, ranging from quarterly and weekly to granular intervals, our study exposes the consistent presence of positive convexity and alpha.

Focused on a spectrum of liquid equity instruments, our analysis, both on a daily and intraday scale, elucidates the potency of momentum amid style factors and its nuanced manifestations. Crucially, our findings accentuate that, at the optimal horizon, momentum strategies applied to Indian securities yield alpha uncorrelated to traditional factors.

The incorporation of active risk-budgeting in portfolio construction emerges as a nuanced enhancement, outperforming conventional mean-variance optimization, as expounded in an upcoming publication. This exploration contributes nuanced perspectives to the realm of tactical asset allocation and quantitative portfolio management within the Indian equity domain.

Related Reading:

Market Timing with Moving Averages

Factor Momentum and the Momentum Factor

FAQ

Q1: What is the primary focus of the paper “Momentum in the Indian Equity Markets,” and what key insights does it offer regarding momentum strategies?

The paper primarily focuses on unraveling the dynamics of momentum in the Indian equity markets, specifically exploring effective momentum strategies across liquid equity futures. The study assesses the persistence of returns using various look-back periods, ranging from quarterly and weekly to granular intervals, and evaluates momentum at different frequencies, including daily and intraday. Notably, the research reveals momentum strategies as a source of uncorrelated alpha in the Indian context at the optimal horizon.

Q2: How does the paper contribute to the understanding of momentum in the Indian equity markets, and what role does active risk-budgeting play in portfolio construction?

The paper contributes to the understanding of momentum in the Indian equity markets by providing insights into its consistent presence, positive convexity, and alpha across diverse look-back periods and data frequencies. It emphasizes the potency of momentum amid style factors and highlights that, at the optimal horizon, momentum strategies applied to Indian securities yield alpha uncorrelated to traditional factors. Active risk-budgeting in portfolio construction is introduced as a nuanced enhancement, showcasing potential outperformance compared to conventional mean-variance optimization.

Q3: What broader implications does the paper suggest for tactical asset allocation and quantitative portfolio management in the Indian equity domain and beyond?

The paper suggests broader implications for tactical asset allocation and quantitative portfolio management within the Indian equity domain and beyond. The findings provide nuanced perspectives on incorporating momentum strategies, emphasizing their uncorrelated alpha at optimal horizons. The introduction of active risk-budgeting in portfolio construction offers a potential enhancement, surpassing traditional mean-variance optimization. These insights have implications for practitioners and researchers in the field of quantitative finance and strategic asset allocation.

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