Factor Momentum

53 Pages Posted: 12 Feb 2018 Last revised: 15 Feb 2018

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Mark Clements

Research Affiliates, LLC

Vitali Kalesnik

Research Affiliates LLC

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Date Written: January 31, 2018

Abstract

Past industry returns predict the cross section of industry returns, and this predictability is at its strongest at the one-month horizon (Moskowitz and Grinblatt 1999). We show that the cross section of factor returns shares this property, and that industry momentum stems from factor momentum. Factor momentum is transmitted into the cross section of industry returns via variation in industries' factor loadings. Momentum in industry-neutral factors spans industry momentum; factor momentum is therefore not a by-product of industry momentum. Factor momentum is a pervasive property of all factors; we show that factor momentum can be captured by trading almost any set of factors. Factor momentum does not resolve the puzzle of momentum in individual stock returns; it significantly deepens this puzzle.

Keywords: factor momentum, factor returns, industry momentum

JEL Classification: G1, G14

Suggested Citation

Arnott, Robert D. and Clements, Mark and Kalesnik, Vitali and Linnainmaa, Juhani T., Factor Momentum (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=3116974 or http://dx.doi.org/10.2139/ssrn.3116974

Robert D. Arnott

Research Affiliates, LLC ( email )

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Mark Clements (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Vitali Kalesnik

Research Affiliates LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8717 (Phone)
949-325-8917 (Fax)

HOME PAGE: http://researchaffiliates.com/index.htm

Juhani T. Linnainmaa

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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