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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
    Head of Quant Research

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.

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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.

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