Momentum and Factor Momentum: A Re-Examination

Abstract

We show that the momentum factor remains a unique and irreplaceable factor, in contrast to the redundancy finding of Ehsani and Linnainmaa (2022), which suffers from an omitted-variable problem. By adding a betting-against-systematic factor to their framework, we find that the momentum factor exhibits significant alpha. Further, we demonstrate that even an improved factor model, such as IPCA, cannot explain the momentum unless momentum characteristics are utilized. Moreover, in an attribution analysis, we show that firm-specific components, not non-momentum factors, are the primary drivers of momentum returns.