This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Momentum Explains a Bunch Of Equity Factors

Quantpedia

Contributor:
Quantpedia
Visit: Quantpedia

Excerpt

Financial academics have described so many equity factors that the whole universe of them is sometimes called “factor zoo”. Therefore, it is no surprise that there is a quest within an academic community to bring some order into this chaos . An interesting research paper written by Favilukis and Zhang suggests explaining a lot of equity factors with momentum anomaly.

Authors: Favilukis, Zhang

Title: One Anomaly to Explain Them All

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444342

Abstract:

We argue that conditional on the existence of momentum, many other asset pricing anomalies are not particularly anomalous. First, empirically, we show that portfolios within which conditional momentum strategies (ie, buying winners and selling losers) are unprofitable, tend to have significantly higher unconditional average returns than portfolios within which momentum strategies are profitable. Second, we rationalize this in a standard model to which we add momentum; the intuition is that assets with more conditional trading opportunities are bid up by speculators and tend to have higher prices and lower unconditional returns. Third, we show that for many asset pricing anomalies, a momentum strategy tends to be unprofitable within the long leg, but profitable within the short leg.

Visit Quantpedia to read the full article:
https://quantpedia.com/momentum-explains-a-bunch-of-equity-factors/?a=6080

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Quantpedia and is being posted with permission from Quantpedia. The views expressed in this material are solely those of the author and/or Quantpedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

trading top