### Return Acceleration More Effective than Momentum?

**October 30, 2015** - Momentum Investing

Does the rate of change of return momentum (return acceleration) usefully predict stock returns? In their August 2015 paper entitled “The Acceleration Effect and Gamma Factor in Asset Pricing”, Diego Ardila-Alvarez, Zalan Forro and Didier Sornette compare the effectiveness of return acceleration (difference between returns for the last six months and the preceding six months) and return momentum as stock return predictors. They devise and test an acceleration factor (which they call gamma) by each month ranking stocks into tenths (deciles) by acceleration and measuring the returns to a monthly reformed hedge portfolio that is long (short) the value-weighted decile with the highest (lowest) acceleration. They also test trading strategies that each month weight stocks according to the ratio of prior-month stock acceleration to the average prior-month acceleration of all stocks versus similarly constructed momentum strategies for 36 combinations of different: ranking intervals (3, 6 or 12 months); holding intervals (1, 3, 6 or 12 months); and, implementation delays (1, 3 or 6 months). Using monthly data for a broad sample of U.S. common stocks and monthly market, size, book-to-market and momentum risk factors during May 1963 through December 2013, *they find that:* Keep Reading