Momentum in Japan: The Exception that Proves
the Rule

Abstract

Momentum strategies deliver positive profits in a variety of markets and asset classes with one glaring exception—Japan. The failure of momentum in Japan has led some to call into question momentum’s viability, suggesting that perhaps momentum’s success elsewhere may be the result of data mining. Asness rejects that interpretation. He argues that because value and momentum strategies are strongly negatively correlated, they need to be studied as a system. He shows that the results in Japan are perfectly consistent with value and momentum working everywhere at similar levels and are entirely within the range of statistical noise. Viewed as a system, he shows that momentum strategies are actually a success in Japan. In sum, Asness finds that the Japanese momentum results are supportive, not contrary, to the idea that momentum is a strong ex ante efficacious strategy around the world. Put differently, the Japanese momentum results are the exception that proves the rule.