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Using Style Index Momentum to Generate Alpha

Last Updated on 10 February, 2024 by Rejaul Karim

The paper “Using Style Index Momentum to Generate Alpha” by Samuel L. Tibbs, Stanley G. Eakins, and William DeShurko explores the momentum exhibited by Russell style indexes, particularly after medium-term out- and underperformance.

The paper demonstrates that this momentum produces a diversified, index-based low-cost means to exploit momentum by incorporating relative style index performance into tactical allocation strategies.

The authors find that such style index momentum trading strategies have outperformed on both a raw and risk-adjusted return basis, with the long minus short portfolio generating an average 9.25% annual return over the 34-year period analyzed. The paper concludes that the excess returns are robust through time and after controlling for potentially confounding effects.

Abstract Of Paper

Russell style indexes exhibit significant momentum, particularly after medium term out- and underperformance. The existence of this momentum produces a diversified, index-based low-cost means to exploit momentum by incorporating relative style index performance into tactical allocation strategies. Such style index momentum trading strategies have outperformed on both a raw and risk-adjusted return basis, with the long minus short portfolio generating an average 9.25% annual return over the 34-year period analyzed. Although the excess returns vary, they are robust through time and after controlling for potentially confounding effects. Additionally, the returns are not driven by any single style index and portfolio reconstruction is, on average, required every six months.

Original paper – Download PDF

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Author

Samuel L. Tibbs
American University of Sharjah – School of Business and Management

Stanley G. Eakins
East Carolina University – College of Business

William DeShurko
401 Advisor, LLC

Conclusion

The paper “Using Style Index Momentum to Generate Alpha” by Samuel L. Tibbs, Stanley G. Eakins, and William DeShurko concludes that style index momentum trading strategies have outperformed on both a raw and risk-adjusted return basis, with the long minus short portfolio generating an average 9.25% annual return over the 34-year period analyzed.

The authors use Russell style indexes to demonstrate that the existence of significant momentum produces a diversified, index-based low-cost means to exploit momentum by incorporating relative style index performance into tactical allocation strategies.

The paper highlights the robustness of the excess returns through time and after controlling for potentially confounding effects. Moreover, the returns are not driven by any single style index and portfolio reconstruction is, on average, required every six months.

Related Reading:

Do Style Momentum Strategies Produce Abnormal Returns: Evidence from Index Investing

Skewness, Individual investor preference, and the Cross-Section of Stock Returns

FAQ

What is the main focus of the paper “Using Style Index Momentum to Generate Alpha”?

The paper explores the momentum exhibited by Russell style indexes, particularly after medium-term out- and underperformance. It aims to demonstrate that the momentum observed in style indexes provides a low-cost means to exploit momentum by incorporating relative style index performance into tactical allocation strategies.

What is the key finding regarding the performance of style index momentum trading strategies?

The paper finds that style index momentum trading strategies have outperformed on both a raw and risk-adjusted return basis. The long minus short portfolio, based on these strategies, generated an average 9.25% annual return over the 34-year period analyzed.

How does the paper contribute to understanding momentum in the context of style indexes?

The paper contributes by highlighting the significant momentum exhibited by Russell style indexes, particularly after periods of medium-term out- and underperformance. It demonstrates how this momentum can be harnessed in a low-cost manner to create tactical allocation strategies.

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