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Winners vs. Losers: Momentum-based Strategies with Intertemporal Choice for ESG Portfolios
Ayush Jha, Abootaleb Shirvani, Ali Jaffri, Svetlozar T. Rachev, Frank J. Fabozzi
https://arxiv.org/abs/2505.24250

Winners vs. Losers: Momentum-based Strategies with Intertemporal Choice for ESG Portfolios
This 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…