Risk-adjusted Momentum Strategy Construction and Industry Heterogeneity Analysis Based on STARR Indicator
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Risk-adjusted Momentum Strategy Construction and Industry Heterogeneity Analysis Based on STARR Indicator

Xupeng Zhang 1*
1 McGill University
*Corresponding author: kaspercheoung@gmail.com
Published on 6 August 2025
Volume Cover
AEMPS Vol.207
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-299-7
ISBN (Online): 978-1-80590-300-0
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Abstract

This study proposes a risk-adjusted momentum strategy based on the STARR (Stable Tail-adjusted Return Ratio) indicator and investigates its performance across different industry sectors in the U.S. and Japanese equity markets. Using monthly data from 2010 to 2025, the strategy constructs Sharpe- and STARR-based momentum factors and applies mean-variance optimization to industry-level ETFs from the S&P 500 and Nikkei 225. Empirical results show that the STARR-based strategy offers superior downside risk control, particularly under extreme market conditions such as the COVID-19 crisis. Moreover, performance varies significantly across sectors and volatility regimes, confirming the presence of industry heterogeneity. The strategy demonstrates robust performance through various parameter configurations and cross-market validation. These findings suggest that incorporating downside-sensitive metrics like CVaR into momentum signal construction can enhance risk-adjusted returns and improve portfolio stability in diverse market environments. This research aims to evaluate the STARR-based momentum strategy's effectiveness across heterogeneous industries under uncertain market conditions.

Keywords:

STARR indicator, Momentum strategy, Industry heterogeneity, Mean-variance

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Zhang,X. (2025). Risk-adjusted Momentum Strategy Construction and Industry Heterogeneity Analysis Based on STARR Indicator. Advances in Economics, Management and Political Sciences,207,43-53.

References

[1]. Rachev, S.T., Jasić, T., Stoyanov, S.V., and Fabozzi, F.J. (2007). Momentum strategies based on reward–risk stock selection criteria. Journal of Banking & Finance, 31(8), 2325–2346.

[2]. Li, Y., Wang, X., & Zeng, Z. (2021, December). Evidences and explanations for the momentum effect in the world: A literature review. In 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021) (pp. 1697-1703). Atlantis Press.

[3]. Hofmann, D., & Keiber, K. L. (2021). Seasonalities in the German stock market. Financial Markets and Portfolio Management, 35(2), 151-192.

[4]. Moskowitz, T. J., & Grinblatt, M. (1999). Do industries explain momentum? The Journal of finance, 54(4), 1249-1290.

[5]. Gao, Y., Han, X., Li, Y., & Xiong, X. (2021). Investor heterogeneity and momentum-based trading strategies in China. International Review of Financial Analysis, 74, 101654.

[6]. Lin, G. (2022, December). Industry Momentum Strategies in A-shares Market. In 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022) (pp. 1123-1130). Atlantis Press.

[7]. Artzner, P., Delbaen, F., Eber, J. M., & Heath, D. (1999). Coherent measures of risk. Mathematical finance, 9(3), 203-228.

[8]. Imran, Z. A., Wong, W. C., & Ismail, R. (2020). Momentum Effect in Developed and Emerging Stock Markets. Journal of Finance and Accounting Research, 2(2), 14-31.

[9]. Guo, X., & Ryan, S. M. (2023). Avoiding momentum crashes using stochastic mean-CVaR optimization with time-varying risk aversion. The Engineering Economist, 68(3), 125-152.

[10]. Zaremba, A. (2018). The momentum effect in country-level stock market anomalies. Economic research-Ekonomska istraživanja, 31(1), 703-721.

References

[1]. Rachev, S.T., Jasić, T., Stoyanov, S.V., and Fabozzi, F.J. (2007). Momentum strategies based on reward–risk stock selection criteria. Journal of Banking & Finance, 31(8), 2325–2346.

[2]. Li, Y., Wang, X., & Zeng, Z. (2021, December). Evidences and explanations for the momentum effect in the world: A literature review. In 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021) (pp. 1697-1703). Atlantis Press.

[3]. Hofmann, D., & Keiber, K. L. (2021). Seasonalities in the German stock market. Financial Markets and Portfolio Management, 35(2), 151-192.

[4]. Moskowitz, T. J., & Grinblatt, M. (1999). Do industries explain momentum? The Journal of finance, 54(4), 1249-1290.

[5]. Gao, Y., Han, X., Li, Y., & Xiong, X. (2021). Investor heterogeneity and momentum-based trading strategies in China. International Review of Financial Analysis, 74, 101654.

[6]. Lin, G. (2022, December). Industry Momentum Strategies in A-shares Market. In 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022) (pp. 1123-1130). Atlantis Press.

[7]. Artzner, P., Delbaen, F., Eber, J. M., & Heath, D. (1999). Coherent measures of risk. Mathematical finance, 9(3), 203-228.

[8]. Imran, Z. A., Wong, W. C., & Ismail, R. (2020). Momentum Effect in Developed and Emerging Stock Markets. Journal of Finance and Accounting Research, 2(2), 14-31.

[9]. Guo, X., & Ryan, S. M. (2023). Avoiding momentum crashes using stochastic mean-CVaR optimization with time-varying risk aversion. The Engineering Economist, 68(3), 125-152.

[10]. Zaremba, A. (2018). The momentum effect in country-level stock market anomalies. Economic research-Ekonomska istraživanja, 31(1), 703-721.

Cite this article

Zhang,X. (2025). Risk-adjusted Momentum Strategy Construction and Industry Heterogeneity Analysis Based on STARR Indicator. Advances in Economics, Management and Political Sciences,207,43-53.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICEMGD 2025 Symposium: Innovating in Management and Economic Development

ISBN: 978-1-80590-299-7(Print) / 978-1-80590-300-0(Online)
Editor: Florian Marcel Nuţă Nuţă, Ahsan Ali Ashraf
Conference website: https://2025.icemgd.org/Lahore.html
Conference date: 23 September 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.207
ISSN: 2754-1169(Print) / 2754-1177(Online)

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