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Fact, Fiction, and Momentum Investing

Clifford Asness, Andrea Frazzini, Ronen Israel and Tobias Moskowitz
The Journal of Portfolio Management Special 40th Anniversary Issue 2014, 40 (5) 75-92; DOI: https://doi.org/10.3905/jpm.2014.40.5.075
Clifford Asness
is managing principal at AQR Capital Management in Greenwich, CT.
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  • For correspondence: cliff.asness@aqr.com
Andrea Frazzini
is a principal at AQR Capital Management in Greenwich, CT.
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  • For correspondence: andrea.frazzini@aqr.com
Ronen Israel
is a principal at AQR Capital Management in Greenwich, CT.
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  • For correspondence: ronen.israel@aqr.com
Tobias Moskowitz
is the Fama Family Professor of Finance at the University of Chicago Booth School of Business in Chicago, IL.
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  • For correspondence: tobias.moskowitz@chicagobooth.edu
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Abstract

It’s been more than 20 years since the academic discovery of momentum investing, yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool. In some cases “confusion and debate” is our attempting to be polite, because it is nearly impossible for informed practitioners and academics to still believe some of the myths uttered about momentum—but that impossibility is often belied by real-world statements. In this article, the authors aim to clear up much of the confusion by documenting what we know about momentum and disproving many of the often-repeated myths. They highlight 10 myths about momentum and refute them, using results from widely circulated academic papers and analysis from simple publicly available data.

TOPICS: Exchanges/markets/clearinghouses, portfolio theory

  • © 2014 Pageant Media Ltd
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The Journal of Portfolio Management: 40 (5)
The Journal of Portfolio Management
Vol. 40, Issue 5
Special 40th Anniversary Issue 2014
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Fact, Fiction, and Momentum Investing
Clifford Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz
The Journal of Portfolio Management Sep 2014, 40 (5) 75-92; DOI: 10.3905/jpm.2014.40.5.075

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Fact, Fiction, and Momentum Investing
Clifford Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz
The Journal of Portfolio Management Sep 2014, 40 (5) 75-92; DOI: 10.3905/jpm.2014.40.5.075
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  • Article
    • Abstract
    • MYTH NO. 1: MOMENTUM RETURNS ARE TOO SMALL AND SPORADIC
    • MYTH NO. 2: MOMENTUM CANNOT BE CAPTURED BY LONG-ONLY INVESTORS BECAUSE MOMENTUM CAN BE EXPLOITED ONLY ON THE SHORT SIDE
    • MYTH NO. 3: MOMENTUM IS MUCH STRONGER AMONG SMALL-CAP STOCKS THAN LARGE CAPS
    • MYTH NO. 4: MOMENTUM DOES NOT SURVIVE, OR IS SERIOUSLY LIMITED BY, TRADING COSTS
    • MYTH NO. 5: MOMENTUM DOES NOT WORK FOR A TAXABLE INVESTOR
    • MYTH NO. 6: MOMENTUM IS BEST USED WITH SCREENS RATHER THAN AS A DIRECT FACTOR
    • MYTH NO. 7: ONE SHOULD BE PARTICULARLY WORRIED ABOUT MOMENTUM’S RETURNS DISAPPEARING
    • MYTH NO. 8: MOMENTUM IS TOO VOLATILE TO RELY ON
    • MYTH NO. 9: DIFFERENT MEASURES OF MOMENTUM CAN GIVE DIFFERENT RESULTS OVER A GIVEN PERIOD
    • MYTH NO. 10: THERE IS NO THEORY BEHIND MOMENTUM
    • CONCLUSION
    • ENDNOTES
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