Stop losses momentum strategy: From profit maximization to risk control under White’s Bootstrap Reality Check

This paper proposes a new approach to decision making processes for investors to focus on factor investing and stock selection strategies on the national stock market by capturing the momentum effect (when two portfolios of past relative winners and past losers continue to beat a given benchmark for a certain period of time in the future). Our approach is based on ranking all the combinations of strategy design (5184 strategies) and the disclosure of the momentum effect with two criteria (mean return and risk) controlling for momentum return probability distribution. It is new perspective on the momentum effect permitting its analysis from a comprehensive view taking into account the strategy’s different design elements and observing how the disposition of investor preferences has changed depending on the criterion. We distinguish two criteria: (1) maximizing the mean return of the investment with control t-statistics and the author’s innovation with the Bootstrap p-value, (2) minimizing the risk approximated by the number of drawdowns. This paper conducts the first comprehensive examination of the momentum effect on the Russian stock market.