Momentum Investing Research

Trend Following and Momentum Turning Points

By |September 11th, 2023|Research Insights, Factor Investing, Trend Following, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research|

Trend follower nerd alert: This study is important because it offers a comprehensive analysis of TS momentum strategies, its unifying framework that links performance to underlying variables, and its practical implications for investors seeking to enhance their understanding of momentum investing and improve their portfolio performance.

Do Short-Term Factor Strategies Survive Transaction Costs?

By |September 5th, 2023|Transaction Costs, Factor Investing, Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance, Momentum Investing Research|

Short term return anomalies are generally dismissed in the academic literature "because they seemingly do not survive after accounting for market frictions.” In this research, short term “factors” are taken seriously and the authors argue the standard parameters may not apply for short horizons.

Investor demand, rating reform and equity returns

By |August 7th, 2023|Price Pressure Factor, Research Insights, Factor Investing, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research, Active and Passive Investing|

The traditional financial theory attributes security returns to market- or factor-based risk, with no role ascribed to other influences. In this research, the authors argue for including investor demand as an additional variable in explaining returns.  Can changes in investor demand generate systematic changes in security returns?

Reducing the Risk of Momentum Crashes

By |July 21st, 2023|Research Insights, Factor Investing, Larry Swedroe, Momentum Investing Research|

The empirical research demonstrates that, on average, investing in previous winners and short selling previous losers offers highly significant returns that other common risk factors cannot explain. However, momentum also displays huge tail risk, as there are short but persistent periods of highly negative returns. Crashes occur particularly in reversals from bear markets when the momentum portfolio displays a negative market beta and momentum volatility is high.

Reducing the Impact of Momentum Crashes

By |May 15th, 2023|Research Insights, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research|

Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of stocks, in terms of momentum, far away from their peak position relative to stocks very near their peaks. Turns out the outperformance is very large. It also accounts for the majority of negative momentum performance.

How factor exposure changes over time: a study of Information Decay

By |April 17th, 2023|Quality Investing, Factor Investing, Research Insights, Basilico and Johnsen, Academic Research Insight, Value Investing Research, Momentum Investing Research, Low Volatility Investing|

Factor strategies need to be rebalanced in order to maintain their factor exposure. But different factors decay at different rates and this affects how they should be rebalanced. For example, momentum needs to be rebalanced more than value. This study digs into these questions.

Momentum Factor Investing: 30 years of Out of Sample Data

By |October 31st, 2022|Research Insights, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research|

In this article, the author examines the research published over the last 30 years on momentum and its theoretical credibility. One of the original momentum articles was published by Jegadeesh and Titman in 1993, and is considered the seminal work on the topic. The research review contained in this publication begins with the 1993 work and confines itself to only the highest quality journals among the plethora of work that has been published on momentum.

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