Winners vs. Losers: Momentum-based Strategies with Intertemporal Choice for ESG PortfoliosAyush Jha, Abootaleb Shirvani, Ali Jaffri, Svetlozar T. Rachev, Frank J. Fabozzihttps://arxiv.org/abs/2505.24250
Winners vs. Losers: Momentum-based Strategies with Intertemporal Choice for ESG PortfoliosThis paper introduces a state-dependent momentum framework that integrates ESG regime switching with tail-risk-aware reward-risk metrics. Using a dynamic programming approach and solving a finite-horizon Bellman equation, we construct long-short momentum portfolios that adjust to changing ESG sentiment regimes. Unlike traditional momentum strategies based on historical returns, our approach incorporates the Stable Tail Adjusted Return ratio and Rachev ratio to better capture downside risk in tu…