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Quantitative investment researchers often seek uniquely optimal parameterizations of their strategies amongst a broad “robust” region of parameter choices. However, this ignores a critically important feature of investing – Diversification. By diversifying across many equally legitimate parameter choices – an ensemble – investors may be able to preserve expected performance with a higher degree of stability.

We examined this concept under the microscope using Dual Momentum – and in particular Global Equity Momentum – as our case study.

Our objectives were twofold:

  1. Verify the strength and robustness of the Dual Momentum concept and specifically the Global Equity Momentum strategy
  2. Describe how to use ensemble methods to preserve expected performance while minimizing the probability of adverse outcomes

Note: This article summarizes the actionable themes covered in our comprehensive report, “Global Equity Momentum: A Craftsman’s Perspective”. Click here to download the full report .

A brief history of global equity momentum

Global Equity Momentum (GEM) was formalized by Gary Antonacci in 2012. The strategy relies on the equity risk premium and two known style premia, trend and momentum, to rotate between U.S. and foreign stocks while moving to bonds when U.S. stocks exhibit a negative trend. The original paper tested the strategy with monthly data over the period 1974-2011. Gary later extended the analysis to cover the period 1950 – 2018, which introduced two out-of-sample periods (1950 – 1973 and 2012 – 2018).