The Anatomy of Factor Momentum

73 Pages Posted: 6 Feb 2020 Last revised: 18 Jun 2021

See all articles by Markus Leippold

Markus Leippold

University of Zurich; Swiss Finance Institute

Hanlin Yang

University of Zurich - Department of Banking and Finance

Date Written: March 23, 2021

Abstract

Do factor momentum stem from predictable factor dynamics or from their mechanical exposure to factor risk premia? To provide an answer to this question, we derive a novel theoretical decomposition of factor momentum into a buy-and-hold and a pure factor timing portfolio. Using 210 US equity factors, we show that factor premiums robustly account for a dominant fraction of the total factor momentum return. Because predictability is empirically too weak, the buy-and-hold portfolio outperforms factor momentum and survives the post-publication decay of factor returns. This evidence is also prevalent in different investment sets, different formation and holding periods, and global factors.

Keywords: Factor momentum, time-series predictability, factor timing portfolio, buy-and-hold portfolio

JEL Classification: G11, G12, G17

Suggested Citation

Leippold, Markus and Yang, Hanlin, The Anatomy of Factor Momentum (March 23, 2021). Available at SSRN: https://ssrn.com/abstract=3517888 or http://dx.doi.org/10.2139/ssrn.3517888

Markus Leippold

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Hanlin Yang (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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