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Stock Factor/Anomaly Momentum

April 16, 2021 • Posted in Momentum Investing

Do published stock factors exhibit performance streaks exploitable via intrinsic (absolute, or time series) and relative (cross-sectional) momentum? In the March 2021 revision of their paper entitled “Factor Momentum and the Momentum Factor”, Sina Ehsani and Juhani Linnainmaa investigate stock factor portfolio monthly time series and cross-sectional momentum. They consider 15 factors for U.S. stocks (size, value, profitability, investment, momentum, accruals, betting against beta, cash flow-to-price, earnings-to-price, liquidity, long-term reversals, net share issuance, quality minus junk, residual variance and short-term reversals) and seven of these factors for global stocks. Each factor portfolio is long (short) stocks with higher (lower) expected returns based on that factor. They each month measure factor momentum as factor portfolio return from 12 months ago to one month ago. They consider six factor momentum strategies and one benchmark strategy that all exclude the stock momentum factor and are all rebalanced monthly and equal-weighted, as follows:

  • Time Series Winners –  long factor portfolios with positive momentum.
  • Time Series Losers – long factor portfolios with negative momentum.
  • Time Series Hedge– long Time Series Winners and short Time Series Losers.
  • Cross-sectional Winners –  long factor portfolios with above-median momentum.
  • Cross-sectional Losers – long factor portfolios with below-median momentum.
  • Cross-sectional Hedge – long Cross-sectional Winners and short Cross-sectional Losers.
  • Benchmark – long all factor portfolios.

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 2019 (mostly Kenneth French data), they find that: (more…)

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