| Momentum review |
| 11/19/23 Momentum Investing |
"The pervasiveness of momentum returns provides perhaps the strongest evidence against the efficient market hypothesis. We find positive momentum returns in the post-2000 period in markets throughout the world, long after the phenomenon was first documented. We do not find support for risk-based explanations of momentum but find that behavioral theories provide insights about why we observe momentum in some markets but not in others. Nevertheless, we find it surprising that with the important exception of the US, most markets that exhibited momentum before 2000 continue to exhibit similarly strong momentum in the post-2000 period."
|
| Reducing momentum crashes |
| 07/23/23 Momentum Investing |
"Stocks far from peaks outperforming stocks near peaks during the market rebounds are the key to understanding the economic channel behind momentum crashes and momentum profits' time-variation."
|
| Reducing momentum crashes |
| 05/21/23 Academia Momentum Investing |
"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 momentum stocks, made somewhat 'immune' to momentum crashes , by including stocks 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."
|
| The Globe 250 Method |
| 12/18/22 Value Investing Norman Rothery Stingy Investing Momentum Investing |
"Our star system combines two schools of investing with pedigrees that stretch back decades and that have been quite profitable in recent times. It starts with value investing principles, which favour profitable companies that trade at low prices relative to their fundamentals. Our system also employs techniques used by momentum investors, who like to buy recent winners."
|
| The Globe 250 Megastars |
| 12/18/22 Value Investing Norman Rothery Stingy Investing Momentum Investing |
"Our new Megastar ranking of Canada's largest publicly-traded companies evaluates each major stock on the TSX and awards two star ratings - one for its appeal to value investors and the other for its allure to momentum investors. We then focused on the 20 stocks with the best blend of value and momentum characteristics, which form our Megastar team."
|
| The Globe 250 |
| 12/09/22 Value Investing Stingy Investing Momentum Investing |
"The idea is to deliver the information that investors desire and use numerical analysis to highlight stocks that might deserve a spot in your portfolio." [$]
|
| Top 20 Megastars |
| 12/09/22 Value Investing Stingy Investing Momentum Investing |
"Our new Megastar ranking of Canada's largest publicly-traded companies evaluates each major stock on the TSX and awards two star ratings - one for its appeal to value investors and the other for its allure to momentum investors. We then focused on the 20 stocks with the best blend of value and momentum characteristics, which form our Megastar team." [$]
|
| The Blended Momentum portfolio |
| 11/14/22 Norman Rothery Stingy Investing Momentum Investing |
"Momentum shines when it comes to returns. It has outperformed over the very long term in nearly all major markets, across many asset classes and using a variety of different approaches."
|
| The Dividend Monster portfolio |
| 10/31/22 Dividends Norman Rothery Stingy Investing Momentum Investing |
"I was working in the lab late one night, when I brewed up the frightfully profitable Dividend Monster portfolio, which mixes momentum with dividend investing."
|
| Thematic vs momentum investing |
| 10/28/22 Momentum Investing |
"If asset managers are unable to select the winning themes, it is highly unlikely that the average investor can. Given this, it is much better to pursue momentum investing, which at times may include stocks from exciting industries. Boring and simple, but effective."
|
| Mind the momentum gap |
| 10/28/22 Momentum Investing |
"Huang's findings are of interest, as he appears to have found a simple heuristic that could add value to a momentum strategy by providing a timing mechanism based on the Momentum Gap and significantly reducing the risk of momentum crashes."
|
| Hot potato update |
| 09/18/22 Stingy Investing Momentum Investing |
"The hot potato portfolio has served up average annual returns of 15.2 per cent since 1981 by using momentum to jump into stocks during bull runs and out of them during long bear markets." [$]
|
| Momentum after valuation peaks |
| 09/18/22 Momentum Investing |
"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."
|
| Avoiding momentum crashes |
| 08/07/22 Momentum Investing |
"Remarkably, crashes are driven by large gains of previous losers while winners still exhibit modestly positive returns."
|
| Momentum by day or night |
| 07/10/22 Momentum Investing |
"Yashar Barardehi and his colleagues performed an interesting experiment. They took all US-listed stocks from 1963 to 2019 and calculated the returns of these stocks during the day (when markets were open) and overnight, as well as the usual 24-hour full-day return. Then they formed momentum portfolios and looked at their performance in the subsequent weeks and months."
|
| Glamour momentum |
| 05/14/22 Momentum Investing |
"we see that building a momentum portfolio solely on stocks trading above 10x P/S is a bad idea (not surprising). One would lose about 3.5% annually compared to the simple momentum portfolio."
|
| Using momentum to find value |
| 05/08/22 Value Investing Momentum Investing |
"The research demonstrates that using multiple measures of value and combining value and momentum in a strategy has produced superior results compared to using either the traditional HML value factor or the traditional momentum factor independently."
|
| Momentum in emerging markets |
| 03/06/22 Markets Momentum Investing |
"Perhaps investors should be skeptical of implementing the strategy in certain markets and heavily discount theoretical returns, but there is still an overwhelming amount of financial research that supports the factor across developed stock markets, where trading stocks has become very cheap, and asset classes, where futures can be used."
|
| The cross-section of stock returns before 1926 |
| 02/15/22 Markets Academia Value Investing Momentum Investing |
"We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of additional and independent data. Our database contains data on stock prices, dividends and hand-collected market capitalizations for 1,488 major stocks between 1866-1926. Results over this 'pre-CRSP' era reveal a flat relation between market beta and returns, an insignificant size premium, and significant momentum, value and low-risk premiums that are of similar size as over the post-1926 period."
|
| What explains momentum? |
| 02/04/22 Academia Momentum Investing |
"There is as yet no consensus on why equity markets permit momentum. Our analysis uses out-of-sample international data to consider a 'horse race' across momentum rationales based on overconfidence, slow diffusion of information, limited attention, anchoring bias, and real options. Our central finding in cross-sectional analyses is that the frog-in-the-pan (FIP) hypothesis, which posits that due to limited attention, investors underreact to information that arrives gradually rather than in concentrated doses, consistently wins. Also, internationally, momentum is stronger in less volatile markets and in up-markets. Information flows more gradually during these market states, implying additional support for FIP."
|
| Hot Potato Portfolio |
| 12/31/21 Indexing Stingy Investing Momentum Investing |
The Hot Potato Portfolio Update from August 2021 [pdf]
|
| Short-term momentum |
| 11/06/21 Momentum Investing |
"We begin our analysis by analyzing the short-term momentum characteristics of developed stock markets. Momentum is defined as measuring the stock markets. return last week, and if positive, then go long, while if negative, then go short. The trade signal is delayed by one day and portfolios are created each day to achieve an implementable and robust trading strategy."
|
| The problem with momentum ETFs |
| 06/13/21 Indexing Momentum Investing |
"This highlights the challenges with momentum ETFs that rebalance only twice a year. In a rapidly changing market environment, the strategies can be slow to catch-up meaning any hope of outperformance, especially in the short term, is most likely wishful thinking."
|
| Value and momentum investing |
| 05/30/21 Value Investing Momentum Investing |
"This article examined a common question - for Value and Momentum Investing, what is the best way to combine factors? While not the first article on the topic, we provide another set of insights. When examining mid-cap and large-cap stocks in both the U.S. and international markets, and keeping the number of stocks in the portfolio the same, more concentrated portfolios historically had higher returns in the 'Separate, then combined' Portfolio as opposed to the 'Combined-signal Portfolio.' In the U.S., as one adds more stocks, the return differential gets smaller. Last, from a risk-adjusted returns perspective, there is no clear-cut winner/loser."
|
| Momentum and mean reversion |
| 04/04/21 Markets Momentum Investing |
"Momentum dictates that what has done the best in the past will continue to do the best and Mean Reversion just the opposite - where what is done the worst will eventually do the best, reverting back to its mean. That both can be true is one of the great paradoxes in investing."
|
| Global trend following |
| 10/24/20 Momentum Investing |
"The bottom line is that, given the diversification benefit and the downside (tail risk) hedging properties, an allocation to trend-following strategies does merit consideration. Note, however, that the generally high turnover of trend-following strategies renders them relatively tax-inefficient, and they can be susceptible to whipsaws. Thus, investors should strongly prefer to hold such strategies in tax-advantaged accounts and focus on the long-term benefits of trend following."
|
| A strategic approach to rebalancing |
| 08/30/20 Momentum Investing |
"They provide two alternatives. The first is to include an allocation to trend following, as trend tends to perform well during extended market downturns. The second is to strategically rebalance based on trend signals - if the trend-following model suggests that stock markets are in a negative trend, rebalancing is delayed."
|
| Moving average momentum |
| 08/01/20 Norman Rothery Stingy Investing Momentum Investing |
"The moving-average portfolio gained an average of 10.4 per cent annually from the end of 1994 through to the end of June, 2020. It beat a buy-and-hold investment in the stock index, which climbed 7.8 per cent annually over the same period. The bond index fared reasonably well but lagged both with annual returns of 6.3 per cent." [$]
|
| Seasonality factor |
| 08/01/20 Momentum Investing |
"Different variations of dual momentum or trend following show similar results. Rebalancing during the first two trading days of the month gives better results than rebalancing on other days of the month or on a weekly basis."
|
| Bad momentum bets |
| 07/18/20 Momentum Investing |
"In factor land, one ugly myth, like a zombie that refuses to die in a B Hollywood movie, is that the market capitalization-weighted benchmark is a good Momentum bet."
|
| Momentum plus long-term reversal |
| 07/11/20 Momentum Investing |
"Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the last 12 months of returns excluding the most recent month (i.e., months 2 - 12) because it tends to show a reversal, which some have attributed to microstructure (trading) effects in which securities that have outperformed recently tend to continue to outperform. The long-term reversal effect is typically defined as the returns from month t - 13 to t - 60, in which securities that have outperformed for a long time tend to see a reversal in performance."
|
| Momentum plus long-term reversal |
| 07/04/20 Momentum Investing |
"Combining the alpha momentum and reversal strategies into the blended signal produces a superior return predictive signal, outperforming the individual momentum and reversal strategies."
|
| 5 factor investing tips |
| 06/12/20 Value Investing Momentum Investing |
"Value, generally represented by portfolios of cheap stocks, holds up well in the analysis. Enterprise multiples and price-to-earnings generate some of the strongest results, however, the practitioner favorite - book-to-market - while able to be replicated, certainly doesn.t yield the strongest results."
|
| Improving momentum strategies |
| 06/06/20 Momentum Investing |
"The results of going long the best 10% and short the worst 10% for the traditional 12-month momentum strategy are already impressive, but if one selects only the stocks that overlap and appear in both the 12-month and 6-month momentum strategies, it gets even better."
|
| Two centuries of value and momentum |
| 06/06/20 Value Investing Momentum Investing |
"Both Value and Momentum have crawled out of even deeper drawdowns in the past."
|
| The bull market is back |
| 06/06/20 Markets Stingy Investing Momentum Investing |
"The extra effort paid off in the form of sizzling returns because the hot potato portfolio fried up average annual returns of 15.4 per cent from the end of 1980 to the end of May, 2020. It surpassed the passive potato portfolio by an average of 5.8 percentage points a year." [$]
|
| Cheap winners vs boring winners |
| 04/17/20 Value Investing Momentum Investing |
"Should investors prefer boring over cheap winners? Based on this analysis, there is no clear answer. The Low Volatility factor had significantly lower drawdowns than Value, but both feature low correlations to Momentum, which creates attractive multi-factor portfolios. Cheap stocks have not performed well over the last decade, but are cheaper, per definition, and low-risk stocks exhibit interest rate-sensitivity."
|
| Momentum down |
| 03/06/20 Stingy Investing Momentum Investing |
"Signs of a serious decline can be gleaned from the behaviour of momentum stocks, which often act like canaries in the market's coal mine." [$]
|
| Liquidity and factor returns |
| 02/07/20 Value Investing Momentum Investing |
"We observe that the performance of the factor decreased consistently as the minimum liquidity constraints increased. This result can be explained by cheap stocks frequently being small stocks, i.e. having exposure to the Size factor. Removing these small and cheap stocks led to lower factor performance."
|
| Forget the shorts |
| 12/11/19 Value Investing Markets Momentum Investing |
"The results show that a hedged long position will have a better Sharpe ratio than the classic long/short factor portfolio. The short portfolios are positive, and in some cases, better than the long portfolios; however, the short combination of factors are inferior."
|
| The Factor Archives: Momentum |
| 12/11/19 Momentum Investing |
"The chart clearly demonstrates that stocks with high momentum outperform the universe, offering an excess return of 4.3% annually. On a risk - adjusted basis, these stocks also outperform, with a Sharpe Ratio 1.5x higher than the All Stocks Universe (0.58 vs. 0.35). Finally, they are also consistent, outperforming in 91% of the 648 rolling.three-year periods."
|
| Enhance momentum strategies |
| 10/11/19 Value Investing Momentum Investing |
"A strategy that buys small value winners and sells large growth losers (MAX strategy) generates significantly larger momentum profits than a standard momentum strategy, is robust to common return controls and does not suffer from return reversals for holding periods up to 3 years."
|
| Improving momentum |
| 05/20/19 Momentum Investing |
"The Momentum factor has two issues: a recent lack of performance and an image problem. We highlight that the performance of Momentum can be improved by combining it with other factors or implementing a volatility filter. However, despite highly attractive long-term returns, investors have allocated magnitudes more capital to Value than to Momentum strategies. Partially this is explained by the simplicity of Momentum, which seems unappealing to many sophisticated investors. Naturally better performance would also lead to higher allocations, so these two issues are somewhat circular."
|
| Role of shorting, firm size, and time |
| 05/01/19 Value Investing Academia Momentum Investing |
"We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions comprise almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years of U.S. equity data and almost 40 years of data across four international equity markets and five asset classes. Variation over time and across markets of these effects is consistent with random chance. We find little evidence that size, value, and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time."
|
| Momentum in Imperial Russia |
| 04/03/19 Momentum Investing |
"Some of the leading theories of momentum have different empirical predictions that depend on market composition and structure. The institutional theory predicts lower momentum profits in markets with less agency. Behavioral theories predict lower momentum profits in markets with more sophisticated investors. One risk-based theory predicts occasional momentum crashes. In this paper, we use a dataset from a major 19th century equity market to test these predictions. We find no evidence to support the institutional theory due to the lack of delegated management. We exploit a regulatory change in the middle of our sample period to test behavior theories. We find evidence consistent with overreaction theories of momentum. We find no evidence to support a rare disaster theory."
|
| Whither fragility |
| 01/22/19 Momentum Investing |
"Those wanting to reduce short-term volatility can add a modest allocation to bonds instead of using multiple lookback models. This would be easier to do, less costly, and potentially more tax efficient. Results are also better."
|
| Dual momentum fragility |
| 01/16/19 Momentum Investing |
"By simply diversifying across multiple implementations, we can dramatically reduce model specification risk and even potentially see improvements in realized metrics such as Sharpe ratio and maximum drawdown."
|
| Simple trend following |
| 11/12/18 Norman Rothery Stingy Investing Momentum Investing |
"If you're like me and are as active a trader as a lazy cat is a mouser, you'll be content to watch the markets scurry to and fro. But those who are more active should perk up because Canadian stocks have underperformed over the past 12 months." [$]
|
| Trend following tracking error |
| 11/01/18 Momentum Investing |
"The tracking error to a trend following strategy is large. When tracking error goes against you, this is an extremely painful process one can endure. Human emotions get involved - which is generally not good for investment decisions."
|
| Extended GEM backtest |
| 10/22/18 Momentum Investing |
"We usually want as much data as we can get to confirm an investment strategy. But we also have to consider how realistic our results will be under earlier conditions. Dynamic global investing, for example, makes little sense during the two World Wars."
|
| The death of the 200 day |
| 09/29/18 Markets Momentum Investing |
"The major market averages' recent all-time highs have done more than confirm that the bull market is still alive: They have raised yet more questions about the market-timing value of the 200-day moving average."
|
| A trend equity primer |
| 09/17/18 Markets Momentum Investing |
"While many investment strategies have a concave payoff profile that reaps small rewards at the risk of large losses, trend-following strategies exhibit a convex payoff profile, one that pays small premiums with the potential of a large reward."
|
| Momentum for retirement |
| 08/07/18 Retirement Momentum Investing |
"Under every withdrawal rate scenario tested, from 3.4% to 12%, the median portfolio managed to more than double the initial investment after 30 years despite withdrawals of various sizes. Further, as a 'risk of ruin' measure, only when the withdrawal rate approached or exceeded 10% did any risk at all appear that the account balance would dip below half of the original amount invested at any time within the 30 years."
|
| Simple momentum |
| 07/16/18 Momentum Investing |
"This simple momentum strategy would have grown at 10.5% for the last 91 years, compared to 10.1% for the index."
|
| Momentum's magic number |
| 07/16/18 Momentum Investing |
"We find similar results, with performance peaking when the formation period plus the holding period is equal to 12-to-14 months."
|
| Momentum strategies have produced standout results |
| 07/02/18 Stingy Investing Norman Rothery Momentum Investing |
"Yet momentum investing works when practised rigorously and systematically. In fact, it has beaten the market over 211 years of U.S. stock market history, from 1801 to 2012, according to AQR Capital Management, which is based in Greenwich, Connecticut. It has also performed well in 40 other countries and for more than a dozen types of assets other than stocks. Heck, some researchers have found that momentum even works when it comes to trading baseball cards." [$]
|
| Cliff Asness interview |
| 06/25/18 Funds Momentum Investing |
"AQR Capital's Cliff Asness, a rare combination of Great Investor and Financial Thought Leader shares his views and strategies."
|
| Sector vs country momentum |
| 06/19/18 Momentum Investing |
"This short research note shows that long-short Momentum portfolios of sectors or countries in European stock markets generated positive excess returns over the last two decades."
|
| 52 week high and the Q-factor |
| 06/19/18 Momentum Investing |
"Firms with high momentum (close to 52-week high) and low asset growth perform the best."
|
| Factors from scratch |
| 06/04/18 Value Investing Momentum Investing |
"The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short-term, before reverting back. Both styles represent a market mistake that can be captured as alpha."
|
| Factor investing: art and science |
| 04/30/18 Value Investing Momentum Investing |
"Having studied finance for a long time, I think I now know less about how the stock market works. In fact, I probably should have stopped studying finance after I read Ben Graham's Intelligent Investor, over 20 years ago. Life would be a lot easier, or at least less complicated. Adhering to Graham's straightforward value investing ethos certainly worked out for Warren Buffett"
|
| Explanations for momentum |
| 04/10/18 Momentum Investing |
"Our findings show that at least a substantial part of U.S. and international momentum profits represents a risk premium for the exposure of the strategy to systematic crash risk"
|
| Common misconceptions about momentum |
| 04/10/18 Momentum Investing |
"With so much information available, it is not be surprising that many analysts have missed seeing some of the research. Based on the way momentum is generally used, it is clear to me that there are some serious misconceptions about it. Here is my discussion of some of the more serious ones."
|
| What's cheap? |
| 03/27/18 Value Investing Markets Momentum Investing |
"Stocks with high conviction buyback programs are as cheap as they've been since the tech bubble, and trending cheaper."
|
| Momentum in Imperial Russia |
| 03/27/18 Academia Momentum Investing |
"Some of the leading theories of momentum have different empirical predictions that depend on market composition and structure. The institutional theory predicts lower momentum profits in markets with less agency. Behavioral theories predict lower momentum profits in markets with more sophisticated investors. One risk-based theory predicts occasional momentum crashes. In this paper, we use a dataset from a major 19th century equity market to test these predictions. We find no evidence to support the institutional theory due to the lack of delegated management. We exploit a regulatory change in the middle of our sample period to test behavior theories. We find evidence consistent with overreaction theories of momentum. We find no evidence to support a rare disaster theory."
|
| A momentum signal |
| 01/29/18 Momentum Investing |
"Historically, the S&P 500 has been followed by above-average returns over the next 6, 12, 24, and 36 months when this cyclical momentum measure is above 85."
|
| Value and momentum portfolio construction |
| 01/22/18 Value Investing Momentum Investing |
"Being a Value investor is difficult, given that the stocks of a Value portfolios tend to have inherent issues, otherwise, these stocks would not be cheap. Being a B/M-focused value investor over the past decade has been especially hard, as the factor returns were effectively zero - plenty of pain, but no gain. Experiencing this factor cyclicality often leads investors to contemplate adding other factors in the hope of improving performance. An obvious candidate would be Momentum, as cheap and rising stocks are more appealing than cheap stocks. However, it is not quite straightforward for investors to add Momentum to a Value portfolio as there are several options available. In this short research note, we will analyze Value & Momentum portfolios created by three common multi-factor model approaches - the combination, the intersectional and the sequential models."
|
| You can have your momentum factor and eat it too |
| 12/11/17 Momentum Investing |
"We don't address this in the paper, but I would argue that this finding - that momentum is implementable at low cost - holds even more strongly when it's part of a multi-factor portfolio, where factors that complement momentum, like value, will dampen turnover. All considered, we find that momentum is quite implementable in real life."
|
| The monster portfolio |
| 10/30/17 Dividends Norman Rothery Stingy Investing Momentum Investing |
"But if investing in solid stocks bores you to tears and you're willing to take on more risk for the slim possibility of gigantic rewards then I might have the just thing for you." [$]
|
| A terrible strategy |
| 05/21/17 Momentum Investing |
"But historically waiting for the market to fall has been an abysmal strategy, far worse than buying and holding in both absolute and risk-adjusted terms."
|
| Idiosyncratic Momentum |
| 05/07/17 Academia Momentum Investing |
"They found that despite similar performances over the first year, these momentum portfolios perform dramatically differently beyond year one - relative-return momentum reverses strongly (producing returns of -0.40 percent per month in months 13 through 60), while abnormal-return momentum continues for years (producing returns of 0.20 percent per month in months 13 through 60)."
|
| Jim O'Shaughnessy talks at Google |
| 04/09/17 Value Investing Momentum Investing |
"Investors who do not have the following traits and emotional quality should index their portfolios. I find they are the majority of investors today." [video]
|
| Q and A with Wes Gray |
| 02/26/17 Momentum Investing |
"The article suggests that the world of investment ideas is almost like religion or politics - you're on one team or the other - but you can't be on both teams at the same time, and there's very little room for conceptual overlap across dissonant ideas. So if you are a value investor, the idea of momentum disgusts you. Similarly, if you are a momentum/technical investor, the idea of value investing is horrid."
|
| Factor zoo |
| 02/26/17 Momentum Investing |
"Factor-based investors and advisors now think they have an advantage. They base this belief on the results of theoretical asset pricing models, many of which have failed empirically."
|
| The momentum index |
| 01/28/17 Indexing Momentum Investing |
"Momentum investors cut their losers and let their winners run. In a roundabout way, that's exactly what the stock market has done over time."
|
| Mistakes of momentum investors |
| 12/04/16 Momentum Investing |
"It is important to remain focused on what is important - accumulating wealth while protecting yourself from severe bear markets. Once you have a good investment strategy, you need to be patient so it can do its work for you. Warren Buffett said the stock market is a mechanism for transferring wealth from the impatient to the patient. This applies to momentum as well as other investors."
|
| Momentum with indexes |
| 11/20/16 Momentum Investing |
"Investors can take advantage of momentum with funds that apply the strategy to individual stocks, or apply it directly using ETFs offering exposure to equity sectors, single countries, or individual asset classes."
|
| Dead or just painful |
| 09/11/16 Momentum Investing |
"On the one hand, stock-selection momentum strategies can have the potential to generate excess expected returns over the long run; on the other hand, these strategies sometimes generate massive amounts of investor pain when they inevitably go through long bouts of poor relative performance. It's a kind of quid pro quo: in order to access the potential gain, you must willing to accept the potential pain."
|
| Largest momentum strategy |
| 05/22/16 Momentum Investing |
"Buying during a bear market is probably one of the most difficult things an investor can do, but staying invested as stocks rise may be a close second. There are constant temptations to 'take money off the table' or 'de-risk your holdings' after a nice run-up. It's not easy to allow compounding to occur without getting in the way and screwing things up."
|
| Are you ready for the Hot Potato? |
| 04/24/16 Norman Rothery Stingy Investing Momentum Investing |
"The Global Hot Potato portfolio, rebalanced monthly, gained an average of 16.7% per year from the start of 1981 to the end of 2015. It beat the classic Couch Potato by a whopping 6.7 percentage points annually."
|
| You can't beat all the chimps |
| 04/16/16 Markets Momentum Investing |
"The fact of the matter is that even a random number generator can, and will, outperform practically all mutual funds. Such random strategies may seem like a joke, and perhaps they are, but if a joke can outperform industry professionals we have to stop and ask some hard questions."
|
| Multi-factor badness |
| 03/28/16 Value Investing Markets Momentum Investing |
"My argument would be that momentum and value mature at different rates. For example, positive momentum tends to be a short-term impulse while expensive tends to be a long-term drag. Negative momentum is a short-term drag while cheap is a long-term positive force. The measurement periods are totally different."
|
| Why is momentum neglected? |
| 01/31/16 Momentum Investing |
"It should come as no surprise that the same irrationality causing momentum to work in the first place also keeps investors from accepting and using it. Behavioral economists have long shown that people are consistently irrational."
|
| Trend following backtest |
| 01/09/16 Momentum Investing |
"I'm going to conduct a comprehensive backtest of three popular trend-following market timing strategies: the moving average strategy, the moving average crossover strategy, and the momentum strategy. These are simple, binary market timing strategies that go long or that go to cash at the close of each month based on the market's position relative to trend. They produce very similar results, so after reviewing their performances in U.S. data, I'm going to settle on the moving average strategy as a representative strategy to backtest out-of-sample."
|
| MiB: Michael Covel |
| 01/09/16 Momentum Investing |
"On this week's Masters in Business radio podcast, I speak with Michael Covel, author of Trend Following and Turtle Trader. Covel is a student of trading, and has helped demystify a number of fascinating aspects of how top traders achieve their greatness."
|
| Factors that launched 1,000 ETFs |
| 12/26/15 Value Investing Momentum Investing |
"Across the five factors, the average long/short spread was 10.3%/year for the entire period (1964-2015), 10.6% for the period of rising rates (1964-1981), 11.8% for the period of falling rates (1981-2008) and 2.3% for the ZIRP period. Clearly, things have tailed off."
|
| Backtesting: a cautionary tale |
| 12/18/15 Momentum Investing |
"The failure to see consistent outperformance from the group as a whole has made me increasingly skeptical of investment approaches that claim to be data-driven. In my view, such approaches receive too much trust and respect, and not enough scrutiny. They hold a reputation for scientific credibility that is not deserved."
|
| Momentum deterioration |
| 12/18/15 Momentum Investing |
"Buying high momentum has had a rough 15-years relative to longer-term history, but avoiding poor momentum has continued to work quite well."
|
| A conversation with Cliff Asness |
| 11/21/15 Academia Value Investing Momentum Investing |
"Tyler and investment strategist Cliff Asness discuss momentum and value investing strategies, disagreeing with Eugene Fama, Marvel vs. DC, the inscrutability of risk, high frequency trading, the economics of Ayn Rand, bubble logic, and why never to share a gym with Cirque du Soleil." [video]
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| Absolute strength vs relative strength |
| 08/23/15 Stingy Investing Momentum Investing |
"When it comes to the markets, the difference between a large wave on a fairly calm day and a huge wave on a stormy day is similar to the contrast between relative strength and absolute strength. But both momentum measures have provided outsized returns over the long run." [$]
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| Absolute strength |
| 08/16/15 Academia Momentum Investing |
"We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The historical distribution yields stable breakpoints that are always positive (negative) for the winner (loser) portfolios. As a result, winners are those that have experienced a significant upward trend, losers are those that have experienced a significant downward trend, and stocks with no momentum have cumulative returns that are not significantly different from zero. The absolute strength momentum strategy is related to, but different from, the relative strength momentum strategy of Jagadeesh and Titman (1993) and the time series momentum strategy of Moskowitz, Ooi, and Pedersen (2011). Time-series regressions show that the returns to the absolute strength momentum strategy completely explain the returns to the relative strength and the time series momentum strategies, but not vice versa. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. For example, an 11-1-1 strategy that buys absolute strength winners and sells absolute strength losers delivers a risk-adjusted return of 2.42% per month from 1965-2014 and 1.55% per month from 2000-2014."
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| Why momentum investing works |
| 07/12/15 Momentum Investing |
"Even if you aren't a practicing value investor, the value anomaly is easy to explain - buy at a discount and then wait. The momentum factor is based on buy high, sell higher or alternatively, cut your losses and let your winners run. Value investing is based on a long-term reversion to the mean. Momentum investing is based on that gap in time that exists before mean reversion occurs. Value is a long game, while momentum is usually seen in the short- to intermediate-term."
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| Momentum and stop losses |
| 06/20/15 Academia Momentum Investing |
"Stop losses and other trend following methods are a way to head off some of the usual pitfalls of human judgement, such as the disposition effect, loss aversion, ambiguity aversion, and flight-to-safety. There is no reason why they should not be used by all momentum investors."
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| Momentum across time |
| 06/13/15 Momentum Investing |
"One conclusion we can draw from these results is that whether we are talking about the equity premium, the value premium or the momentum premium, investors require patience and discipline - aided by strong belief - to benefit from most strategies."
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| 215 years of global multi-asset momentum |
| 06/13/15 Academia Momentum Investing |
"Extending price return momentum tests to the longest available histories of global financial asset returns, including country-specific sectors and stocks, fixed income, currencies, and commodities, as well as U.S. stocks, we create a 215-year history of multi-asset momentum, and we confirm the significance of the momentum premium inside and across asset classes. Consistent with stock-level results, we document a large variation of momentum portfolio betas, conditional on the direction and duration of the return of the asset class in which the momentum portfolio is built. A significant recent rise in pair-wise momentum portfolio correlations suggests features of the data important for empiricists, theoreticians and practitioners alike."
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| Index roulette revisited |
| 05/23/15 Indexing Stingy Investing Momentum Investing |
"Momentum is one of the biggest and most omnipresent forces in financial markets. Its fingerprints can be found in stock returns, across geographies and between asset classes." [$]
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| How to combine value and momentum |
| 04/04/15 Value Investing Momentum Investing |
"The evidence suggests that we keep highly active exposures to value and momentum in their purest forms (assuming we are doing high-conviction non-watered down versions of the anomalies). Blending the strategy dilutes the benefit of value and momentum portfolios."
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| High-flying Fairfax |
| 11/23/14 Value Investing Stingy Investing Momentum Investing |
"Melding value investing with momentum investing tends to be particularly powerful. In this case, think of value investing as the meat and potatoes of portfolio construction. The idea is to stick to good companies at reasonable prices. Momentum investing represents the horseradish because it favours hot stocks that are expected to move even higher."
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| 52-Week High and Momentum Investing |
| 11/15/14 Markets Academia Momentum Investing |
"That is, the price level, relative to a reference point (the 52-week high), seems in this context to be an even more powerful price predictor than momentum in isolation. And while reversals do occur for momentum stocks, 52-week high stocks do not reverse."
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| The remarkable truth about 52-week highs |
| 08/16/14 Markets Momentum Investing |
"if one of your stocks hits a new 52-week high, you probably shouldn't be nervous. In fact, perhaps you should be excited."
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| You'll love momentum investing |
| 05/30/14 Stingy Investing Momentum Investing |
"Our propensity to spot patterns in almost anything is one reason why I give short shrift to technical analysis. But the surprising universality and persistence of momentum investing is winning me over."
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| Fact, fiction and momentum investing |
| 05/10/14 Academia Momentum Investing |
"It's been over 20 years since the academic discovery of momentum investing, yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool. In some cases 'confusion and debate' is us attempting to be polite, as it is near impossible for informed practitioners and academics to still believe some of the myths uttered about momentum - but that impossibility is often belied by real world statements. In this article, we aim to clear up much of the confusion by documenting what we know about momentum and disproving many of the often-repeated myths. We highlight ten myths about momentum and refute them, using results from widely circulated academic papers and analysis from the simplest and best publicly available data."
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| On stock splits |
| 05/26/13 Value Investing Markets Momentum Investing |
"This brings me to my conclusion: stock splits are a momentum effect, but it is larger when companies are still have a cheap valuation. Perhaps splits have no effect on stock performance - it is all momentum and valuation."
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| Absolute momentum |
| 04/07/13 Academia Markets Momentum Investing |
"There is a considerable body of research on relative strength price momentum but relatively little on absolute, time series momentum. In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter - the formation, or look back, period. We then examine the reward, risk, and correlation characteristics of absolute momentum applied to stocks, bonds, and real assets. We finally apply absolute momentum to a 60-40 stock/bond portfolio and a simple risk parity portfolio. We show that absolute momentum can effectively identify regime change and add significant value as an easy to implement, rule-based approach with many potential uses as both a stand- alone program and trend following overlay."
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| A crystal ball for stocks? |
| 02/20/12 Stingy Investing Momentum Investing |
"At a very deep level, we're all suckers for patterns. The problem is, it's easy to stumble on erroneous patterns in large mounds of data. You can see the result on TV almost every night in the form of new medical breakthroughs. You know, titillating things like the discovery that eating yellow foods decreases the risk of having a heart attack. But after loading up on squash and turning a strange shade of pale, another study might come along that refutes the first and instead points to the cancer causing properties of yellow food. It's a wonder health-conscious people eat anything all. (Rest assured yellow foodies, these examples are fictitious.) The problem being, just because you've spotted a pattern doesn't mean that it's predictive or, in math speak, correlation does not prove causation. All too often what the researcher actually uncovered occurred simply by chance. That doesn't keep our love of predictable patterns from infiltrating the markets in all sorts of unexpected ways."
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