A Look Under the Hood of Momentum Funds

Abstract

Momentum investing has surged over the past few years, with assets growing at three times the rate of conventional funds. Using a comprehensive dataset of US equity funds, this paper examines the economic value of momentum funds. Overall, we find that risk-adjusted returns of momentum funds are, on average, negative, and most of the time series variation of those returns is explained by exposure to the market factor. Furthermore, momentum funds do not improve the performance of investors who already invest in Fama-French factors.

Keywords: Momentum, Mutual funds, Fama-French factors