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

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.