Physical approach to price momentum and its application to momentum strategy
We introduce various definitions for price momentum on financial instruments in quantitative and mathematical ways. Measurement of the equity price momentum derived from the concept of momentum in physics can be conducted by velocity and mass defined in diverse manners. By using the physical momentum of equities as a selection criterion, the momentum/contrarian strategies are implemented in the South Korean stock market. The physical momentum strategies provide better expected returns and risk-reward ratios than those of the original momentum strategy in weekly scales and part of monthly scales. In addition to that, the spontaneously symmetry breaking of arbitrage is also tested for the physical momentum strategies and the strategies with symmetry breaking generate the stronger performance and increase stability of the portfolios.