Factor Momentum

48 Pages Posted: 12 Nov 2020 Last revised: 22 Mar 2021

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Mark Clements

Research Affiliates, LLC

Vitali Kalesnik

Research Affiliates Global Advisors

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: March 21, 2021

Abstract

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

Arnott, Robert D. and Clements, Mark and Kalesnik, Vitali and Linnainmaa, Juhani T., Factor Momentum (March 21, 2021). 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 )

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Newport Beach, CA 92660
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Vitali Kalesnik

Research Affiliates Global Advisors ( email )

16 Berkeley Street
London, W1J 8DZ
United Kingdom
+44 2039299880 (Phone)

HOME PAGE: http://https://www.researchaffiliates.com/en_us/home.html

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.tuck.dartmouth.edu/faculty/faculty-directory/juhani-linnainmaa

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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