Aqr Momentum Fund

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Overview Momentum is a phenomenon shows that well-performed stocks continue to outperform their peers while poor-performed stocks continue to underperform. Thus, more mutual funds use this powerful strategy to draw a broad range of investors by getting higher risk-adjusted returns. AQR is a hedge fund based in Greenwich, Connecticut, offering investing products that applies price phenomenon known as momentum. This case study enables investors to get a closer look at AQR’s momentum fund. Comparison of momentum specifications In order to analyze the momentum effect of different specifications, stocks were divided into ‘winner’ stocks and ‘loser’ stocks according to their rankings. From the data we can see that the decile spread…show more content…
Traditional momentum strategy According to the case, there were four differences between AQR’s retail momentum strategy and traditional momentum strategy. 1. The retail strategy can only take long positions on winner stocks, while the traditional one can also short the loser stocks to maximize returns. 2. As an open-ended mutual fund, AQR has to maintain certain level of liquidity and be ready to return capital to investors when they demand, while the traditional strategy used by hedge funds can require a lock-up period and a long redemption notice period. 3. AQR’s strategy faced more stringent reporting and compensation requirements. 4. AQR’s strategy was required by regulators to be sufficiently diversified among assets, industries as well as companies. And to compare the profitability of both strategies, we estimated the expected returns and risks measured by different ratios, shown as below. Excess return of AQR’s Momentum Strategy Excess return of Traditional Momentum Strategy Mean 15.28 7.17 Standard Deviation 27.30 12.27 Beta 1.224 0.006 Alpha 5.94 7.12 Standard Error of Alpha 9.19 12.35 Table 2.1 Basic parameters of returns estimated with the sample data AQR’s Momentum Strategy Traditional Momentum Strategy Sharpe Ratio 0.56 0.58 Treynor Ratio 0.1248 11.95 Information

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