Whither Fragility? Dual Momentum GEM

Corey Hoffstein of Newfound Research recently wrote an article called, “Fragility Case Study: Dual Momentum GEM.” Corey starts out saying my dual momentum approach is the strategy he sees implemented the most among do-it-yourself tactical investors. Corey then said several investors bemoaned that GEM kept them invested in the stock market during the last quarter…

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…

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…

And the Winner Is…

Until recently, the longest back test using stock market data was Geczy and Samonov’s 2012 study of relative strength momentum called “212Years of Price Momentum: The World’s Longest Backtest: 1801-2012”. The length of that study is now exceeded by an 800 year backtest of trend following in Greyserman and Kaminski’s new book, Trend Following with…

More Time Series Momentum…

Absolute momentum is a key factor in my latest momentum paper. Positive absolute momentum exists when an asset shows a positive excess return over the lookback period. Others call this time-series momentum. The more common momentum approach, which appears in most research papers, is relative (or cross-sectional) momentum, where one asset is compared to its…

Momentum Back Testing

In 1937, Cowles and Jones published the first study showing that relative strength price momentum leads to abnormally high future returns. Academics have been diligent in studying momentum further since it flies in the face of the efficient market hypothesis (EMH). EMH says you cannot beat the market using publicly available information. Hundreds of subsequent tests over…