Bring More Data

Several months ago we posted an article called “Bring Data” where we showed the importance of having abundant data for system development and validation. This was further reinforced to us recently when someone brought us additional U.S. stock sector data. Previously, we only had Morningstar sector data that went back to 1992, which we used…

Multi-Factor Investing

Multi-factor investing that combines value, momentum, quality (profitability), or low volatility factors is today’s hot new investment approach. There has been an explosion of multi-factor ETFs recently with eleven of the sixteen existing U.S. multi-factor funds coming to market this year and five of them showing up within the past 60 days. But multi-factor funds…

Bring Data

When doing financial modeling, one of the first things to look at is if your empirical work makes sense. In other words, are there valid economic reasons why a model should work?  This can help you avoid drawing erroneous conclusions based on creative data mining.[1] Next, you should look for robustness. This can take several…

Momentum Due Diligence

Sometimes I get asked how well momentum has done the past year. If I am in a snarky mood that day, I’ll respond, “What will that tell you?” The truth of the matter is that, in most cases, short-term performance is indistinguishable from noise. Here are the questions that one should ask instead: 1)  Why…

Momentum and Stop Losses

Stop losses are a form of trend following in which you switch from risky assets, such as stocks, to a risk-free or fixed income asset after there are pre-determined cumulative losses. The random walk hypothesis (RWH) was widely accepted in the 1960s and 1970s. It was synonymous with market efficiency. It effectively eliminated any academic…

Dual, Relative & Absolute Momentum

Years ago when I first started studying momentum, two things stood out to me. The first was that most momentum research focused on cross-sectional stock studies. These looked at the future performance of stocks that had been strong versus stocks that had been weak. This was what interested academics most, since abnormal profit from strong…

Sustainable Momentum Investing: Doing Well By Doing Good

Socially Responsible Investing (SRI), also known as Environmental, Social, and Governance (ESG) investing or Impact Investing, is the major application of ethical and social criteria, as well as financial considerations, in making investment decisions. SRI recognizes and incorporates societal needs and benefits in the selection and management of investment portfolios. SRI has a “feel good”…