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I have read some papers on quantitative trading strategies and it seems like strategies that focus on mean reversion or statistical arbitrage give signals that are dependent on some quantitative model.

But when you turn to momentum strategies, people start talking about moving averages to generate signals. Why is that? Isn't there a more quantitative method of detecting momentum than moving averages ?

silencer
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    I would say moving averages are quantitative in nature too. Isn't this more of a question of whether you describe a strategy as model-based vs. technical rules-based. And just to rephrase your question, you state that you are surprised that momentum strategies tend to be described as technical rules (moving averages etc)? – jk3000 Dec 10 '11 at 22:50
  • Yes you can say that. So I guess my question is, why are momentum strategies technical rule-based instead of model-based ? – silencer Dec 11 '11 at 18:51
  • This is a really interesting question. I am currently working at a fund that uses very simple moving average for implementing the momentum strategy. Although I said simple, this is still a working strategy. However I agree with you that there are other more quantitative definitions of the momentum since there is actually NO single definition of the momentum. For an answer of this, I invite you to my own question --> http://quant.stackexchange.com/questions/12950/the-definitions-of-momentum (still waiting for a proper answer) Regards – Pierre Jul 07 '14 at 14:59

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As jk3000 writes in his comment, moving averages are quantitative. Moving averages can be made quite sophisticated, if desired. Besides simple moving averages, there are exponential moving averages, moving averages on inhomogenous (tick) data, and meta models incorporating multiple moving averages with time-varying weights.

Also, the canonical academic definition of momentum (Jegadeesh and Titman (1993)) looks at top/bottom performers over some time period, often relative to a model such as CAPM or Fama-French. Momentum can mean different things to different people, but to serious quants, it is more often something along the lines of relative performance than moving averages. See http://momentum.behaviouralfinance.net/ to get a better idea.

Tal Fishman
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