Evidence supporting factor-based seasonalities
Factor seasonality reflects its own stock-level equivalent. It is not an independent risk factor.
Factor seasonality reflects its own stock-level equivalent. It is not an independent risk factor.
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?
Doug Pugliese, the head of our 1042 QRP business, was recently invited on the ScuttleButt Podcast to discuss the ESOP landscape and the costs and benefits of 1042 QRP transactions. (article on the topic is here).
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.
The article aims to explore the possibility that changes in fundamentals play a role in the attenuation of stock market anomalies, offering an alternative explanation to the prevailing arbitrage-based explanation
This paper finds that the level of industry classification plays a significant role in the performance of industry momentum strategies.
We recently hosted our 6th Annual Democratize Quant Conference. This post is a recap of what we heard and some resources we can make available to the public.
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.
Eric Balchunas, Cliff Asness, Kai Wu, Que Nguyen, Corey Hoffstein
In this paper, we propose a cross-sectional option momentum strategy that is based on the risk component of delta-hedged option returns. We find strong evidence of risk continuation in option returns.
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.
Jiadong Liu and Fotis Papailias contribute to the momentum literature with their study “Time Series Reversal in Trend-Following Strategies,” published in the January 2023 issue of “European Financial Management,” in which they examined the reversal property of various financial assets.
The contribution of salience theory to the theory of asset pricing turns out to be quite a profitable insight for momentum strategies.
This paper explores the question of option momentum by examining what the research says about the performance of option investments across different stocks.
Industry and factor momentum should be viewed as recent developments in the wider momentum story, although these aggregated measures of momentum lack any theoretical foundation.
We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of independent data.
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.
This article discusses the academic research about the Momentum Gap and the role that its predictive potential may have in reducing momentum crashes, hence possibly improving performance.
Atilgan et al. contribute to the momentum literature with “Momentum and Downside Risk in Emerging Markets.”
Does gender matter in institutional investing?
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