Learning From AQR's "Fact, Fiction and Momentum Investing"

10 common myths about Relative Momentum investing are addressed.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.

The paper addresses the below common myths about Relative Momentum investing.

Myth #1: Momentum returns are too “small and sporadic”.

Myth #2: Momentum cannot be captured by long-only investors as “momentum can only be exploited on the short side”.

Myth #3: Momentum is much stronger among small cap stocks than large caps.

Myth #4: Momentum does not survive, or is seriously limited by, trading costs.

Myth #5: Momentum does not work for a taxable investor.

Myth #6: Momentum is best used with screens rather than as a direct factor.

Myth #7: One should be particularly worried about momentum’s returns disappearing.

Myth #8: Momentum is too volatile to rely on.

Myth #9: Different measures of momentum can give different results over a given period!

Myth #10: There is no theory behind momentum.

Research Paper: Fact, Fiction and Momentum Investing

Authors: Clifford S. Asness, Andrea Frazzini, Ronen Israel, Tobias J. Moskowitz

Organisations: AQR Capital Management, University of Chicago

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