48 Pages Posted: 12 Nov 2020 Last revised: 22 Mar 2021
Date Written: March 21, 2021
Past industry returns predict future industry returns, and this predictability is at its strongest at the one-month horizon. We show that the cross section of factor returns shares this property and that industry momentum stems from factor momentum. Factor momentum transmits into the cross section of industry returns through variation in industries’ factor loadings. We show that momentum in "systematic industries," mimicking portfolios built from factors, subsumes industry momentum as does momentum in industry-neutral factors. Industry momentum is therefore a byproduct of factor momentum, not vice versa. Momentum concentrates in its entirety in the first few highest-eigenvalue factors.
Keywords: Factor momentum, factor investing, industry momentum, principal component factors
JEL Classification: G1, G14
Suggested Citation: Suggested Citation