Factor Momentum

Abstract Factors display strong cross-sectional momentum that subsumes momentum in industries and other portfolio characteristics. The profits of all these momentum strategies—based on factors, industries, and other characteristics—significantly correlate with each other and therefore likely emanate...

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Bibliographic Details
Published in:The Review of financial studies 2023-08, Vol.36 (8), p.3034-3070
Main Authors: Arnott, Robert D, Kalesnik, Vitali, Linnainmaa, Juhani T
Format: Article
Language:English
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Summary:Abstract Factors display strong cross-sectional momentum that subsumes momentum in industries and other portfolio characteristics. The profits of all these momentum strategies—based on factors, industries, and other characteristics—significantly correlate with each other and therefore likely emanate from the same source. If factors display momentum, so will any set of portfolios with cross-sectional variation in factor loadings. Consistent with factors being at the root of momentum, we find that momentum in industry-neutral factors explains industry momentum, but industry momentum explains none of the factor momentum. Cross-sectional factor momentum concentrates in the first few highest-eigenvalue factors and is distinct from time-series factor momentum. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhad006