Risk-Managed Industry Momentum and Momentum Crashes

This is the first paper that investigates Barosso and Santa-Clara’s (2015) risk-managed momentum strategy in an industry momentum setting. We investigate traditional momentum strategies and Novy-Marx (2012) strategy. We also explore the impact of different variance forecast horizons on the average payoffs. We find that risk-managed industry momentum payoffs generate considerably higher returns than plain momentum strategies. Notably, risk-managed payoffs increase linearly as the time window for variance forecasts are contracted which is consistent for all different strategies.