Fact, Fiction and Momentum Investing
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What they found
Four AQR researchers take on ten common claims about momentum, such as 'momentum returns are too small and sporadic', 'it cannot be captured after trading costs', 'it works only on the short side', 'it is a small-cap effect', and 'it does not work for taxable investors'. For each they present evidence from U.S. and international data, and for most they argue the claim is fiction. They confirm momentum's real weaknesses: it can crash, and it is a poor stand-alone strategy relative to combining it with value.
What you can use
- A plain-language FAQ that addresses the practical objections a retail trader will actually have about momentum.
- Momentum's returns come from both the long and the short side, and a long-only version still captures much of the benefit.
- Trading costs are real but manageable for patient, low-turnover implementations; they are ruinous for impatient ones.
- Momentum complements value; it does not replace it.
Caveats
Written by practitioners who sell momentum products, so read it as an informed advocate's case. Not peer-reviewed at the level of a top journal.
Tags: momentum, practitioner, survey, beginner-friendly
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.