Why longer time horizon of momentum behavior leads to two possible results?

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Course Name: Day Trading Strategies for Beginners, Section No: 6, Unit No: 1, Unit type: Video



Why longer time horizon of momentum behavior leads to lower Sharpe ratio and underperformance after finanvial crisis?

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Hi Levi,



Although answering this question may require conducting empirical analysis, I will try to give an answer.



I can say that momentum trading strategies suffer from negative returns especially during market crashes due to high volatility. Since the possibility of experiencing a high volatility environment increases as the time horizon widens, a momentum strategy may produce lower Sharpe ratio for a longer time horizon.



Hope this helps.

 

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Hi Suleyman,



I am appreciative for your response. It really helps.