Quant Geek Weekend Finance Homework

Quant Geek Weekend Finance Homework

April 4, 2015 Uncategorized
Print Friendly
(Last Updated On: January 18, 2017)

Recently Discovered Research You Might Have Missed:

Note: This site provides NO information on our value investing ETFs or our momentum investing ETFs. Please refer to this site.

Join thousands of other readers and subscribe to our blog.

Please remember that past performance is not an indicator of future results. Please read our full disclosures. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.

Definitions of common statistics used in our analysis are available here (towards the bottom)

About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • RT1C

    Interesting research. The paper by Zakamulin did a nice job of highlighting the probability of time-series momentum outperforming over 5-10 year time horizons (only a little over 50%). I do have a suggestion. Look at his discussion around p. 33ff and especially Fig. 3. The episodic nature of events leading to MOM outperformance, and its association with bear market conditions, led me to wonder about secular trends. Zakamulin does not discuss this–in fact, he chose a 20 year lookback period since that is long enough to contain several bull and bear markets, whereas that may be as long as a single secular bull or secular bear. I realize ‘secular’ trends are debated, but consider the definition of secular bull vs. bear as defined by P/E cycles in Ed Easterling’s work (books, website). For example, look at http://www.crestmontresearch.com/docs/Stock-Secular-Annotation.pdf and http://www.crestmontresearch.com/docs/Stock-Secular-Explained.pdf). Compare those to Fig. 3 of the paper. It seems to me that if MOM underperforms during bull markets, then maybe it would be best to use passive strategies during secular bulls (when cyclical bulls are more likely to dominate) and MOM during secular bears (when bear markets are more frequent and/or severe). Thus, for example, there seems to be a correlation between the 1942-1965 and 1982-1999 secular bulls and periods of MOM underperformance in Fig. 3.
    Any thoughts?