Journal of Applied Probability
- J. Appl. Probab.
- Volume 53, Number 2 (2016), 341-359.
Momentum liquidation under partial information
Momentum is the notion that an asset that has performed well in the past will continue to do so for some period. We study the optimal liquidation strategy for a momentum trade in a setting where the drift of the asset drops from a high value to a smaller one at some random change-point. This change-point is not directly observable for the trader, but it is partially observable in the sense that it coincides with one of the jump times of some exogenous Poisson process representing external shocks, and these jump times are assumed to be observable. Comparisons with existing results for momentum trading under incomplete information show that the assumption that the disappearance of the momentum effect is triggered by observable external shocks significantly improves the optimal strategy.
J. Appl. Probab., Volume 53, Number 2 (2016), 341-359.
First available in Project Euclid: 17 June 2016
Permanent link to this document
Mathematical Reviews number (MathSciNet)
Zentralblatt MATH identifier
Primary: 91G10: Portfolio theory
Secondary: 60G40: Stopping times; optimal stopping problems; gambling theory [See also 62L15, 91A60]
Ekström, Erik; Vannestål, Martin. Momentum liquidation under partial information. J. Appl. Probab. 53 (2016), no. 2, 341--359. https://projecteuclid.org/euclid.jap/1466172858