Department of Finance, Northern Illinois Universit
740 Garden Road
DeKalb, IL 60115
Institutional Affiliation: Northern Illinois University
NBER Working Papers and Publications
|February 2019||Factor Momentum and the Momentum Factor|
with Juhani T. Linnainmaa: w25551
Momentum in individual stock returns emanates from momentum in factor returns. Most factors are positively autocorrelated: the average factor earns a monthly return of 1 basis point following a year of losses and 53 basis points following a positive year. Factor momentum explains all forms of individual stock momentum. Stock momentum strategies indirectly time factors: they profit when the factors remain autocorrelated, and crash when these autocorrelations break down. Our key result is that momentum is not a distinct risk factor; it aggregates the autocorrelations found in all other factors.