Learning From AQR’s "Fama On Momentum"

Momentum’s success is most likely from some irrational behavior and investor biases showing up in prices.

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.

Momentum’s long term success might be due to any combination of three reasons

  1. Data mining. Perhaps the momentum results are just luck and won’t be repeated. One can never truly dismiss data mining. But surely the evidence has reduced this to the tiniest of chances.
  2. Momentum’s success could be rational compensation for risk. There’s nothing wrong with being a risk factor with “crash risk” that still pays off over the long haul. The equity risk premium has been pretty good and it looks like that.
  3. Momentum’s success could be from some irrational behavior and investor biases showing up in prices. It is likely that the lion’s share of the real explanation for momentum’s success comes from this category.


Academics and practitioners can continue to debate the reasons why momentum exists, but the debate as to its existence and whether it can be captured should be put to bed at this point. We think it’s easily and obviously a factor any investor, and even more certainly for an investor who also believes in the value factor, should include in their portfolio.

Research Paper: Fama on Momentum

Author: Cliff Asness

Company: AQR Capital Management

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