The Benefits of Price and Operating Momentum in Equity Portfolios
As a result of the magnitude of prior drawdowns, investors have exhibited a tendency to avoid these stocks, leading to higher excess returns. Ruenzi and Weigert provide evidence of this phenomenon in a 2017 study showing high tail-risk stocks meaningfully outperform.6 The “fat tail” of momentum returns may inhibit leveraged investors from exploiting the momentum anomaly, a capital restriction that may contribute to the phenomenon’s persistence.
Types of Momentum
Cross-Sectional Momentum
Cross-sectional momentum is what the well-established, quantitative momentum factor is based on, and what most investors identify when they seek to incorporate pure momentum exposure. We would argue that this measure of momentum is directionally…
