Is Factor Momentum More than Stock Momentum?

33 Pages Posted: 27 Oct 2020

See all articles by Antoine Falck

Antoine Falck

Capital Fund Management International Inc.

Adam Rej

Capital Fund Management International Inc.

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: September 9, 2020

Abstract

Yes, but only at short lags. In this paper we investigate the relationship between factor momentum and stock momentum. Using a sample of 72 factors documented in the literature, we first replicate earlier findings that factor momentum exists and works both directionally and cross-sectionally. We then ask if factor momentum is spanned by stock momentum. A simple spanning test reveals that after controlling for stock momentum and factor exposure, statistically significant Sharpe ratios only belong to implementations which include the last month of returns. We conclude this study with a simple theoretical model that captures these forces: (1) there is stock-level mean reversion at short lags and momentum at longer lags, (2) there is stock and factor momentum at all lags and (3) there is natural comovement between the PNLs of stock and factor momentums at all horizons.

Keywords: factor returns, factor momentum, stock momentum

JEL Classification: G40, G12

Suggested Citation

Falck, Antoine and Rej, Adam and Thesmar, David, Is Factor Momentum More than Stock Momentum? (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=3688983 or http://dx.doi.org/10.2139/ssrn.3688983

Antoine Falck

Capital Fund Management International Inc. ( email )

The Chrysler Building, 55th floor,
405 Lexington Avenue,
New York, NY 10174
United States

Adam Rej

Capital Fund Management International Inc. ( email )

The Chrysler Building, 55th floor
405 Lexington Avenue
New York, NY 10174
United States
+1 6469578018 (Phone)

David Thesmar (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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