Opposites attract: Combining alpha momentum and alpha reversal in international equity markets

Abstract

The authors offer a new integrated framework to combine alpha momentum and alpha reversal into a superior investment strategy for international equity markets. Mixing both effects into a single blended alpha signal forms a stronger country and industry selection method. An equal-weighted strategy that simultaneously goes long the indexes with the highest short-term and the lowest long-term alphas and shorts the ones with the lowest short-term and highest long-term alphas yields monthly three-factor model alphas of 1.16% and 1.44% for countries and industries respectively. The results are robust to alternative weighting schemes the effect of trading costs alternative alpha models and controlling for popular return predictive variables. © 2020 Elsevier B.V. All rights reserved.