Could you expand on which momentum anomaly you tested? One type is cross-sectional momentum (buy the top 1/10th of stocks that went up and short the bottom 1/10th), which is subject to major periods of drastic underperformance. This is all well documented in the literature. The other type is using momentum on the market as a whole, perhaps switching between asset classes based on momentum. I would not think that you could assess a strategy based on 6 months of performance.
My view as an investor since the 1980s is that the EMH is true to a 0th approximation. However massive agency issues in the fund management industry leave room to outperform on a risk adjusted basis if your incentives are different from the average fund manager. Some anomalies are just not exploitable by fund managers/agents because they would lose all their funds under management after periods > 12 months of underperformance.
Sure—I was testing a dual momentum strategy over the market as a whole, with a 12-month lookback period. The ‘dual’ refers to both absolute momentum, and relative momentum between asset classes (bonds, US stocks, non-US stocks).
I haven’t evaluated it properly yet, but the signals it generated told me to stay in stocks until the end of March, at which point I ought move into bonds, just in time to miss the recovery. Over the period I’ve tested it so far (16 months) it has returned −4%, while my benchmark is at +18%. I am still mildly interested to see how it pans out, but I ignored the signals and am now only tracking it on paper.
Could you expand on which momentum anomaly you tested? One type is cross-sectional momentum (buy the top 1/10th of stocks that went up and short the bottom 1/10th), which is subject to major periods of drastic underperformance. This is all well documented in the literature. The other type is using momentum on the market as a whole, perhaps switching between asset classes based on momentum. I would not think that you could assess a strategy based on 6 months of performance.
My view as an investor since the 1980s is that the EMH is true to a 0th approximation. However massive agency issues in the fund management industry leave room to outperform on a risk adjusted basis if your incentives are different from the average fund manager. Some anomalies are just not exploitable by fund managers/agents because they would lose all their funds under management after periods > 12 months of underperformance.
LW readers interested in the topic may like reading the Alphaarchitect blog. https://alphaarchitect.com/blog/
Sure—I was testing a dual momentum strategy over the market as a whole, with a 12-month lookback period. The ‘dual’ refers to both absolute momentum, and relative momentum between asset classes (bonds, US stocks, non-US stocks).
I haven’t evaluated it properly yet, but the signals it generated told me to stay in stocks until the end of March, at which point I ought move into bonds, just in time to miss the recovery. Over the period I’ve tested it so far (16 months) it has returned −4%, while my benchmark is at +18%. I am still mildly interested to see how it pans out, but I ignored the signals and am now only tracking it on paper.