### Stock Factor/Anomaly Momentum

**August 24, 2017** - Momentum Investing

Do stock factors/anomalies exhibit performance streaks exploitable via intrinsic (absolute, or time series) and relative (cross-sectional) momentum? In his July 2017 paper entitled “Factor Momentum and the Momentum Factor”, Sina Ehsani investigates stock factor/anomaly monthly time series (TS) and cross-sectional (XS) momentum. He considers 15 anomalies for U.S. stocks (accruals, betting against beta, investments, cash flow-to-price, earnings-to-price, book-to-market, long-term reversal, liquidity, net share issue, quality minus junk, profitability, residual variance relative to the 3-factor model, market capitalization, short-term reversal and momentum) and global stock versions of seven of these anomalies. He considers the following baseline strategies:

- Time series momentum:
- TS Winners – each month hold equally weighted anomaly hedge portfolios with a positive average monthly return over the past 12 months.
- TS Losers – each month hold equally weighted anomaly hedge portfolios with a negative average monthly return over the past 12 months.
- TS – each month buy TS Winners and sell TS Losers.

- Cross-sectional momentum:
- XS Winners – each month hold equally weighted anomaly hedge portfolios with an above-average monthly return over the past 12 months.
- XS Losers – each month hold equally weighted anomaly hedge portfolios with a below-average monthly return over the past 12 months.
- XS – each month buy XS Winners and sell XS Losers.

- Benchmark – each month hold an equally weighted combination of all anomaly hedge portfolios.

He tests different lookback and holding intervals for these strategies. He also tests interaction of factor/anomaly momentum with investor sentiment. Using monthly returns as available for the 15 U.S. stock anomalies since July 1963 and seven of these anomalies applied to global stocks since July 1990, all through December 2015 (mostly Kenneth French data), *he finds that:* Keep Reading