australiaen
Short-term factor momentum

Short-term factor momentum

21-08-2019 | From the field
The evidence for the existence of various factor premiums is strong. But evidence that the performance of these factor premiums can be successfully timed is conspicuously absent.
  • David Blitz
    David
    Blitz
    Chief Researcher

This is not for lack for effort, because many investors and asset managers have tried to develop a successful factor timing strategy.

Two recent papers1 show that factors exhibit short-term return momentum: factors that did well (poorly) over the past one month tend to continue to do so over the subsequent one month. These studies suggest that factor performance can be timed after all, albeit in the very short run only.

However, it remains an open question whether the short-term factor momentum effect can be profitably exploited after transaction costs, and whether the effect is also present in markets other than the United States.

1 See: Gupta & Kelly, “Factor Momentum Everywhere”, Journal of Portfolio Management, Vol. 45, No. 3, pp. 13-36, 2019. See also: Arnott, Clements, Kalesnik & Linnainmaa, “Factor Momentum”, working paper, 2019.

Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
Subscribe
From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

Read all articles
Subjects related to this article are:

Related articles

See all

Related strategies

Logo

Disclaimer

BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.

What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License
  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)
  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993
  • that is a body registered under the Financial Corporations Act 1974.
  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.
  • that is a listed entity or a related body corporate of a listed entity
  • that is an exempt public authority
  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.
  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
I Disagree