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?
How did Momentum investing perform after the previous two valuation peaks?
This article answers this question.
Key finding: Momentum investing also performed well following episodes when value stocks were cheap. Of course, momentum portfolios did not perform nearly as well as value portfolios, but they did still beat the generic market.
We dig into the details below.
We find that factor momentum concentrates in factors that explain more of the cross section of returns and that it is not incidental to individual stock momentum: momentum-neutral factors display more momentum.
Short-term alpha signals are generally dismissed in traditional asset pricing models, primarily due to market friction concerns. However, this paper demonstrates that investors can obtain a significant net alpha by combining signals applied on a liquid global universe with simple buy/sell trading rules. The composite model consists of short-term reversal, short-term momentum, short-term analyst revisions, short-term risk, and monthly seasonality signals. The resulting alpha is present across regions, translates into long-only applications, is robust to incorporating implementation lags of several days, and is uncorrelated to traditional Fama-French factors.
How information affects asset prices is of fundamental importance. Public information flows through news, while private information flows through trading. We study how stock prices respond to these two information flows in the context of two major asset pricing anomalies— short-term reversal and momentum. Firms release news primarily during non-trading hours, which is reflected in overnight returns. While investors trade primarily intraday, which is reflected in intraday returns. Using a novel dataset that spans almost a century, we find that portfolios formed on past intraday returns display strong reversal and momentum. In contrast, portfolios formed on past overnight returns display no reversal or momentum. These results are consistent with underreaction theories of momentum, where investors underreact to the information conveyed by the trades of other investors.
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