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Momentum Variations

Does Complexity Beat Simplicity?

Nicolas Rabener
10 min read
6 Aug 2018

SUMMARY

  • The simplicity of the Momentum factor can be intellectually challenging
  • Various alternative Momentum versions highlight remarkable similar return profiles
  • The robustness is an attractive characteristic of the investment strategy

INTRODUCTION

What do selfies, the Kardashians, Crocs, blue cheese, and Boris Johnson have in common? They all rank within the top 50 things that split the opinion of modern British people according to a recent survey. An equivalent list in finance likely includes cryptocurrencies, the valuation of the S&P 500, the direction of interest rates, the future of the Euro, and the Momentum factor. The latter is a slightly more unusual component as there is a significant amount of academic research that has shown that Momentum, both time series and cross-sectional, works within various asset classes, across different markets and time periods.

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