Momentum Finished?

CXO Advisory highlights an interesting paper with the tagline: “Momentum Not Working?”

Here’s the link:

Here is the link to the source:

This work inspired me to run the Size, Value, and Momentum factors through our systems and see what has happened over the past few years.

  • All returns are from Ken French’s website.
  • MOM=L/S Momentum=”Momentum factor”
  • SMB=L/S Size=”Size Factor”
  • HML=L/S Value=”Value Factor”
  • 1/1/2001–12/31/2010



  • Size and value worked.
  • Momentum was working, then fell off a cliff.

Market Cycles:

  • Value got killed in the 2008 debalce
  • Momentum got killed in the post 2008 runup


  • Value/size did a fairly good job preserving capital relative to the SP 500


  • Market=Mediocre at best.
  • Value=Good to go.
  • Size=Good to go.
  • Momentum=Terrible.


Momentum returns are a lot like Bill Miller’s returns: they were on an epic winning streak, but gave almost all the gains back in a short period of time. My hunch is that momentum can still add alpha over the long haul, but the trick is finding a way to capture the alpha, without dying in the short-term. All the short-term volatility is likely due to the fact that momentum is a very crowded trade among quants–every pitchbook I’ve seen from a quant involves some form of momentum.




About the Author

Wesley R. Gray, Ph.D.Better known as "The Turnkey Analyst, Ph.D.", Executive Managing Member, Empiritrage, LLC, Assistant Professor of Finance, Drexel University’s LeBow College of Business, United States Marine Corps, Captain, Ground Intelligence Officer, Published author; featured speaker, author, and lecturer at numerous venues (top-tier universities, museums, radio, and television), Ph.D./M.B.A. Finance, University of Chicago Booth School of Business, B.S. The Wharton School, University of Pennsylvania, magna cum laude Wes' homepage is at all posts by Wesley R. Gray, Ph.D. →

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