Factor Momentum and the Momentum Factor
53 Pages Posted: 7 Aug 2017 Last revised: 8 Feb 2019
Date Written: February 5, 2019
Momentum in individual stock returns emanates from momentum in factor returns. Most factors are positively autocorrelated: the average factor earns a monthly return of 2 basis points following a year of losses and 52 basis points following a positive year. Factor momentum explains all forms of individual stock momentum. Stock momentum strategies indirectly time factors: they profit when the factors remain autocorrelated, and crash when these autocorrelations break down. Our key result is that momentum is not a distinct risk factor; it aggregates the autocorrelations found in all other factors.
Keywords: Anomalies; Autocorrelation; Factors; Momentum
JEL Classification: G11; G12; G40
Suggested Citation: Suggested Citation