Journal of Applied Probability

Momentum liquidation under partial information

Erik Ekström and Martin Vannestål

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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.

Article information

J. Appl. Probab., Volume 53, Number 2 (2016), 341-359.

First available in Project Euclid: 17 June 2016

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Mathematical Reviews number (MathSciNet)

Zentralblatt MATH identifier

Primary: 91G10: Portfolio theory
Secondary: 60G40: Stopping times; optimal stopping problems; gambling theory [See also 62L15, 91A60]

Momentum trading stock selling optimal stopping quickest detection problem for Brownian motion


Ekström, Erik; Vannestål, Martin. Momentum liquidation under partial information. J. Appl. Probab. 53 (2016), no. 2, 341--359.

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