Quantitative Momentum

Appendix A

Investigating Alternative Momentum Concepts

We've spent multiple years trying to understand how to capture a sustainable long-term momentum premium. Although this book is essentially a summary of our efforts, it is not meant to be a literature review of momentum. If we went down that route, the book would be over a thousand pages long and the reader would still be left with the question we try to answer in this book: What is the “best” momentum strategy? Indeed, anyone who takes the time to review the entire literature on momentum might reasonably arrive at different conclusions. Nonetheless, because we read every research paper we could find on momentum, we thought we should share the most interesting ideas, and why we chose to not include them in our quantitative momentum process. We hope this will assist our readers to better understand why we think our approach makes the most sense as compared with the variations we discuss below. All of the results presented use the same universe of stocks used through the book and the focus is on long-only strategies.

The ideas presented and analyzed are as follows:

• How is momentum related to fundamentals?
• Is the 52-week high a better momentum signal?
• Can absolute strength improve relative strength momentum?
• Can the volatility of momentum be constrained?
• Do we even need stock selection momentum?

While there are many other interesting and promising ideas associated with momentum, these appear to be the core areas that we identified ...