Momentum liquidation under partial information
2016 (English)In: Journal of Applied Probability, ISSN 0021-9002, E-ISSN 1475-6072, Vol. 53, no 2, 341-359 p.Article in journal (Refereed) Published
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.
Place, publisher, year, edition, pages
2016. Vol. 53, no 2, 341-359 p.
Momentum trading; stock selling; optimal stopping; quickest detection problem for Brownian motion
Mathematics Probability Theory and Statistics
IdentifiersURN: urn:nbn:se:uu:diva-283519DOI: 10.1017/jpr.2016.4ISI: 000378598700003OAI: oai:DiVA.org:uu-283519DiVA: diva2:919252
FunderSwedish Research Council