Momentum-Managed Equity Factors
68 Pages Posted: 22 Jul 2019 Last revised: 20 Jul 2021
Date Written: July 18, 2021
Managed portfolios that exploit positive first-order autocorrelation in monthly excess returns of equity factor portfolios produce large alphas and gains in Sharpe ratios. We document this finding for factor portfolios formed on the broad market, size, value, momentum, investment, prof- itability, and volatility. The value-added induced by factor management via short-term momentum is a robust empirical phenomenon that survives transaction costs and carries over to multi-factor portfolios. The novel strategy established in this work compares favorably to well-known timing strategies that employ e.g. factor volatility or factor valuation. For the majority of factors, our strategies appear successful especially in recessions and times of crisis.
Keywords: factor timing, time series momentum, anomalies
JEL Classification: G12, G17
Suggested Citation: Suggested Citation