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Implementing Momentum: What Have We Learned?

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “Implementing Momentum: What Have We Learned?” by Adrienne Ross, Tobias J. Moskowitz, Ronen Israel, and Laura Serban addresses the feasibility of running momentum portfolios in practice, an area where limited studies have been conducted.

Despite the abundance of academic evidence supporting the efficacy and intuition behind momentum investing, many continue to doubt its implementability due to its high turnover. By using seven years of live data, this study aims to evaluate the implementability of momentum investing, taking into account expenses, estimated trading costs, taxes, and other frictions faced in real-life portfolios.

Through their analysis, the authors demonstrate that live momentum portfolios can indeed capture the momentum premium, challenging the notion that momentum investing is too difficult or costly to implement in practice.

Abstract Of Paper

An abundance of academic evidence and theory exists on the efficacy and intuition behind momentum investing, yet a limited number of studies discuss the feasibility of running momentum portfolios in practice. And no study to date has directly analyzed implementation costs for a live momentum portfolio.

As a result, many are still quick to dismiss momentum as difficult or costly to implement because of its high turnover. In this paper, we use seven years of live data to evaluate the implementability of momentum investing. We show that live momentum portfolios are capable of capturing the momentum premium, even after accounting for expenses, estimated trading costs, taxes, and other frictions associated with real-life portfolios.

Original paper – Download PDF

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Author

Adrienne Ross
AQR Capital Management, LLC

Tobias J. Moskowitz
Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Ronen Israel
AQR Capital Management, LLC

Laura Serban
AQR Capital Management

Conclusion

In conclusion, the research paper “Implementing Momentum: What Have We Learned?” by Adrienne Ross, Tobias J. Moskowitz, Ronen Israel, and Laura Serban presents a comprehensive analysis of the feasibility of running momentum portfolios in practice, which has remained relatively unexplored.

Despite doubts about the implementability of momentum investing due to high turnover, the authors demonstrate through seven years of live data that it is indeed possible to capture the momentum premium.

This finding challenges the prevailing notion of momentum investing as difficult or costly to implement, as the authors account for expenses, estimated trading costs, taxes, and other real-life portfolio frictions.

This study ultimately provides valuable insights to investment professionals, shedding light on the practical implementation of momentum portfolios and encouraging further exploration of this investment strategy.

Related Reading:

Optimization of Equity Momentum: (How) Does it Work?

Overcoming Arbitrage Limits: Option Trading and Momentum Returns

FAQ

Q1: What is the main focus of the research paper by Adrienne Ross, Tobias J. Moskowitz, Ronen Israel, and Laura Serban?

The research paper focuses on evaluating the feasibility of implementing momentum portfolios in practice, an area that has received limited attention in existing studies. It addresses concerns about the high turnover associated with momentum investing and aims to analyze the practical aspects, including expenses, estimated trading costs, taxes, and other frictions faced in real-life portfolios.

Q2: What does the study reveal about the implementability of momentum investing?

The authors use seven years of live data to demonstrate that live momentum portfolios can capture the momentum premium. Despite concerns about high turnover and implementation costs, the study challenges the notion that momentum investing is too difficult or costly to implement in practice. The findings suggest that momentum portfolios are capable of delivering positive returns even after accounting for real-world frictions.

Q3: Why is this research significant for practitioners and investors?

This research is significant for practitioners and investors as it provides empirical evidence and insights into the practical implementation of momentum portfolios. By addressing concerns and demonstrating the viability of implementing momentum investing in real-life scenarios, the study offers valuable guidance for investment professionals looking to incorporate momentum strategies into their portfolios.

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