Time-series and cross-sectional price momentum: Applying the Dual Momentum strategy from a Norwegian perspective

Abstract

Time-series and cross-sectional price momentum have been observed in the majority of asset classes around the globe. This thesis investigates and replicates the Dual Momentum strategy created by Antonacci (2014) from a Norwegian perspective. The Dual Momentum strategy combines both time-series and cross-sectional price momentum and applies the price momentum to indexes. Using indexes simplifies and reduces the transaction cost compared to momentum strategies that involve large stock portfolios. The Dual Momentum strategy uses the current price and the historical price less the risk-free rate to determine if an asset’s momentum is positive over the last twelve months. The asset with the highest momentum is held, unless the momentum is negative, then high-quality bonds are held until the momentum returns to positive. In this thesis OBX and ST5X serve as the Norwegian assets, and 39 different foreign indexes have been tested as the third asset of the Dual Momentum strategy. The results show impressive risk-adjusted returns, lower standard deviations, higher sharpe ratio and lower maximum drawdowns than holding OBX as a passive index investment in the same period. The vast majority of the Dual Momentum portfolios return significant positive alphas after the CAPM model, Fama-French and Carhart factors are applied in regression analysis. The thesis validates the Dual Momentum strategy from the Norwegian perspective in the tested sample period of 21 years. The strategy produces higher risk-adjusted returns in the sample period than the benchmark, and the findings are in line with the current price momentum literature.