Factor Momentum and the Momentum Factor

Author: Sina Ehsani, Juhani T. Linnainmaa

Momentum in individual stock returns emanates from momentum in factor returns. Most factors are positively autocorrelated: the average factor earns a monthly return of 6 basis points following a year of losses and 51 basis points following a positive year. We find that factor momentum concentrates in factors that explain more of the cross section of returns and that it is not incidental to individual stock momentum: momentum-neutral factors display more momentum. Momentum found in high-eigenvalue PC factors subsumes all forms of individual stock momentum. Our results suggest that momentum is not a distinct risk factor; it times other factors.

Ehsani, Sina and Linnainmaa, Juhani T., Factor Momentum and the Momentum Factor (December 9, 2020). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3014521 or http://dx.doi.org/10.2139/ssrn.3014521
Source: https://papers.ssrn.com/sol3/papers.cfm?abstr...

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