The value at risk of time series dynamics and countercurrent trading strategies
This paper not only provides a theoretical model for the value-at-risk of active and passive trading strategies, but also examines the substantial implications relating to risk management. Our results suggest that, first, passive strategies are riskier than active trading strategies based on historical returns, such as momentum and counter-current strategies. Second, dynamic (counter-current) trading is riskier in a bullish (bearish) market. Third, the value-at-risk of momentum (contrarian) strategies has a positive relationship with the absolute value of the autocorrelation of return, as well as a positive (negative) relationship with market condition. In addition, dynamic trading strategies offer superior risk-adjusted performance compared to other strategies in international stock markets.