Aug. 30, 2016
Speaker : Dr. Jan-Carl Plagge , Head of Applied Research, STOXX
The EURO STOXX 50® Multi-Asset Momentum Risk Cap indices combine the performance of two components – the EURO STOXX 50® and the EURO STOXX 50® Corporate Bonds Index. The allocation between these two underlying indices is hereby based on a combination of a momentum strategy and a cap on volatility. In order to account for differences in investors’ risk preferences, indices with volatility caps of 5%, 7,5%, 10%, 15% and 20% are available.
The empirical analysis indicates that a binary momentum strategy based on the EURO STOXX 50 and the EURO STOXX 50 Corporate Bonds Index delivers superior performance results over the time period analyzed, hereby outperforming single index investments into either the EURO STOXX 50 or the EURO STOXX 50 Corporate Bonds index. The combination of momentum with a risk ceiling enables investors to profit from the performance-increasing effect stemming from the momentum factor while simultaneously being sensitive to risk. The offering of various risk caps allows investors to find their individually preferable trade-off between risk and return. However, additional return is found to come for the price of additional risk. Thus, the lower the risk ceiling, the lower the expected return.
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