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Improving the Momentum Factor

Can Momentum Be Fixed?

Nicolas Rabener
10 min read
20 May 2019

SUMMARY

  • The performance of the Momentum factor in the US has been poor since 2000
  • Fundamental valuation spreads were ineffective for improving the performance
  • Combinations with other factors and factor volatility filters would have yielded better results

INTRODUCTION

John H. Cochrane of the Hoover Institution at Stanford University described the ever-growing number of factors in the investment industry as the factor zoo in 2011. Taking the statement literally and assigning animals to factors is actually quite challenging. Value represents cheap stocks, but which animal is cheap?

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