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Momentum-Strategien für Stockpicker: So finden Sie Gewinneraktien - mit einem der erfolgreichsten Handelsansätze unserer Zeit
In Wes Gray's prior book, "Quantitative Value," he described a complex systematic value strategy strategy using techniques limited to sophisticated quants at large quantitative hedge funds on Wall Street. Why not do the same thing for "Momentum? "The first part of his new book, co-author with Jack Vogel and David Foulke, will outline what momentum investing is and what it is not. Many value investors are confused by momentum and "incorrectly "assume it is "growth" investing. Similarly, technical traders consider momentum to be an esoteric academic concept that some quant managers add into their value models. "The reality is that momentum stands on its own two feet as a stock selection strategy." Quantitative Momentum will educate investors about momentum and highlight that the phenomenon has deep roots in behavioral psychology and is widely utilized by sophisticated hedge funds on Wall Street.
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First published April 25, 2016
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August 22, 2018
Momentum investing works - period. I thought momentum was all about buying stocks that have gone up, and coming from a value background I found it a bit idiotic, but little did I know about the quantitative world behind all of this. This might not be as much of an epiphany for you as it was for me, but this book opened my eyes to a world that I was extremely unfamiliar with. If you, like me, find yourself reading the same old Graham-mantras over and over just reiterated by different authors, this is most probably something you should read.
The book is split in two parts where the first part is all about understanding momentum - what momentum really is, why it works and why it should continue to provide a sustainable edge going forward. The second part is all about the craft of constructing a momentum-based portfolio based on academic proof. To be fair Quantitative Momentum is a…quantitative book. It’s packed with graphs, tables, numbers and references to academic studies. Although its academic nature, the book is written by two PhD’s – go figure, the book is an unexpectedly pleasant read. I had no problem keeping up despite generally reading the book on my busy and chaotic morning commute.
The authors start off with explaining what momentum is, and more importantly, why momentum works. They argue that momentum investing and value investing both work because they are essentially just two different sides of the same behavioral bias-coin. Maybe the reason that active portfolio management actually works is that we humans are overly skeptic in nature. The authors write: “Value investing's edge is often characterized as pessimism in the presence of poor short-term fundamentals, which causes stocks to become too cheap relative to future expectations. Perhaps momentum investing's edge could be characterized as pessimism in the presence of strong short-term fundamentals, which causes stocks to remain too cheap relative to future expectations."
The authors are not trying to make people pick sides with this book, rather they are trying to convince value investors that a quantitative momentum approach would bring great balance to the overall portfolio composition.
The book is packed with “good stuff” but one of my favorite takeaways is the concept of “frog-in-the-pan-momentum” where the path a momentum stock takes makes a big difference going forward. The point is that a stock with lower volatility, but strong uptrend, can continue to have a strong trend while staying under the radar of most value investors. On the opposite side, a volatile stock which spends every other day on the scoreboard of best/worst performers will constantly be in the eye of investors and will therefore have a higher probability of having its trend interrupted by active investors trying to correctly value the asset.
Another key concept for me was that of mean reversion in different time series. That things mean revert in nature is hardly news, but shouldn’t mean reversion work against momentum to cancel out the effect? Well, yes and no. The authors find that stocks mean revert in shorter and longer time periods (under 1 month and over 1 year) but follow the momentum trend in medium-term time periods. Basically, stocks that have gone up the most the last month will tend to mean revert and go down the most in the coming month, and vice versa. On the other hand, stocks that have performed the best over the last 12 months will typically continue to perform well over the coming month or months. In the authors’ stock-selection-model they solve these contradictory concepts by looking at momentum for the past 12 months, while ignoring the last month, thereby using both the medium-term-momentum while also taking the mean-reversion-effect into account.
For those already praying to the momentum god, this is a great book filled with ideas and proofs to improve their momentum stock selection. For the community of Graham-believers, me included, this book is a definite must-read.
Olle Qvarnström, August 22, 2018
The book is split in two parts where the first part is all about understanding momentum - what momentum really is, why it works and why it should continue to provide a sustainable edge going forward. The second part is all about the craft of constructing a momentum-based portfolio based on academic proof. To be fair Quantitative Momentum is a…quantitative book. It’s packed with graphs, tables, numbers and references to academic studies. Although its academic nature, the book is written by two PhD’s – go figure, the book is an unexpectedly pleasant read. I had no problem keeping up despite generally reading the book on my busy and chaotic morning commute.
The authors start off with explaining what momentum is, and more importantly, why momentum works. They argue that momentum investing and value investing both work because they are essentially just two different sides of the same behavioral bias-coin. Maybe the reason that active portfolio management actually works is that we humans are overly skeptic in nature. The authors write: “Value investing's edge is often characterized as pessimism in the presence of poor short-term fundamentals, which causes stocks to become too cheap relative to future expectations. Perhaps momentum investing's edge could be characterized as pessimism in the presence of strong short-term fundamentals, which causes stocks to remain too cheap relative to future expectations."
The authors are not trying to make people pick sides with this book, rather they are trying to convince value investors that a quantitative momentum approach would bring great balance to the overall portfolio composition.
The book is packed with “good stuff” but one of my favorite takeaways is the concept of “frog-in-the-pan-momentum” where the path a momentum stock takes makes a big difference going forward. The point is that a stock with lower volatility, but strong uptrend, can continue to have a strong trend while staying under the radar of most value investors. On the opposite side, a volatile stock which spends every other day on the scoreboard of best/worst performers will constantly be in the eye of investors and will therefore have a higher probability of having its trend interrupted by active investors trying to correctly value the asset.
Another key concept for me was that of mean reversion in different time series. That things mean revert in nature is hardly news, but shouldn’t mean reversion work against momentum to cancel out the effect? Well, yes and no. The authors find that stocks mean revert in shorter and longer time periods (under 1 month and over 1 year) but follow the momentum trend in medium-term time periods. Basically, stocks that have gone up the most the last month will tend to mean revert and go down the most in the coming month, and vice versa. On the other hand, stocks that have performed the best over the last 12 months will typically continue to perform well over the coming month or months. In the authors’ stock-selection-model they solve these contradictory concepts by looking at momentum for the past 12 months, while ignoring the last month, thereby using both the medium-term-momentum while also taking the mean-reversion-effect into account.
For those already praying to the momentum god, this is a great book filled with ideas and proofs to improve their momentum stock selection. For the community of Graham-believers, me included, this book is a definite must-read.
Olle Qvarnström, August 22, 2018
August 9, 2019
Great introduction to the momentum factor.
My notes:
Explanation of Value, Momentum and growth factors:
For momentum, the expectation error is surprisingly tied to an under-reaction to positive news.
Strategies like momentum presumably work because they sometimes fail spectacularly relative to passive benchmarks.
The behavioral premise for momentum is that investors tend to under-react to positive news reflected in the strong relative performance.
They can be explained by behavioral finance:
- The disposition effect: if you own a stock that has gone up in value, you may seek to realize the gain by selling it. After all, it feels good to realize a gain.
52-week-high stocks greatly outperform 52-week low stocks
Value investing's edge is often characterized as pessimism in the presence of poor short-term fundamentals, which causes stocks to become too cheap relative to future expectations.
Perhaps momentum investing's edge could be characterized as pessimism in the presence of strong short-term fundamentals, which causes stocks to remain too cheap to future expectations.
Value is driven by an overreaction problem, in which humans are too quick to draw conclusions from a small amount of recent data. In contrast, momentum is driven by an under-reaction issue, which is the opposite of overreaction.
Momentum investing is not growth investing. Growth investing is characterized by securities that have high prices relative to past fundamentals. We characterize momentum investing as securities that have strong relative performance to all other securities, independent of fundamentals.
Charlie Munger: "Avoid extremely intense ideology because it ruins your mind".
There are two components that drive sustainable success for active investors:
- A keen understanding of human psychology
- A thorough grasp of "smart money" incentives
Value investing, whether driven by a human or a computer, beat the market.
1.Know the fish at the table
2. Know the sharks at the table
3. Find a table with a lot of fish and few sharks.
If one can identify a process with an established edge that requires long-term discipline to exploit (i.e. requires sustainable investors), it is likely that this process will serve as a promising long-term strategy that will beat the market over time.
Many smart investors are hamstrung by the short-term performance measures imposed by them by their investors.
Value investors as a group were destroyed by the market in the late 1990's along with the internet bubble. Generic value investing underperformed the broader market by a large margin for six long years.
Being a value investor requires a patience and faith that few investors possess. In theory, value investing is easy - buy-and-hold cheap stocks for the long haul_but in practice, true value investing is almost impossible.
Classic value investors claim to earn their paycheck by timing the difference between fundamentals and market prices. But what if the market decides to never update their expectations about the intrinsic value of a firm (also known as value trap) ? The value investors need market expectations to change in their favor for the strategy to work. Value investing does not work simply because the investor buys cheap. Value investing works because cheap price-to-fundamental ratios mean revert in favor of the value investor, on average.
Cheap stocks have terrible past earning growth, whereas expensive stocks have had wonderful earnings growth over the past five years. No real surprise there, but it is interesting to see how well the data fits this relationship.
Momentum is relatively uncorrelated with value. Investors can increase their expected risk and reward trade-offs by replacing generic equity allocations with active momentum and value allocations.
Human beings suffer from an inability to properly weigh their chances of success for low probability events. In other words, humans predictably overestimate their chances of winning the lottery. That is at the origin of the low beta anomaly.
Design of a momentum strategy:
Short-term winners are losers in the near-term future, and short-term losers are winners in the near-term future. Overall, when measuring momentum over a short-time horizon (one-month look back), one can expect to see a reversal in short-term future returns.
Long-term momentum (5-years look back) , similar to short-term momentum. leads to reversals in the future.
Intermediate-term (based on 6-12 months look back) momentum works.
Apparently, the best strategy is selecting stocks based on past 12 months performance and holding the position for 3 months. The last month is ignored to account for the short-term reversal effect previously documented.
As a general rule, and putting transaction costs aside, the more frequent a portfolio is rebalanced, the better the performance.
"Smooth" high-momentum stocks tend to perform better than "choppy" high momentum stocks. Momentum strategies that focus on the path-dependency of momentum generate a much stronger momentum effect.
Momentum profits are highest in quarter-ending months, as window-dressing may cause institutional demans flows into high momentum stocks and out of low momentum stocks to show clients a good-looking portfolio.
Tax incentives lead to strong momentum profits in December as winners are unlikely to experience selling pressure and losers are likely to suffer from selling pressure. However, those tax-related flows will be reversed at the beginning of the year.
My notes:
Explanation of Value, Momentum and growth factors:
For momentum, the expectation error is surprisingly tied to an under-reaction to positive news.
Strategies like momentum presumably work because they sometimes fail spectacularly relative to passive benchmarks.
The behavioral premise for momentum is that investors tend to under-react to positive news reflected in the strong relative performance.
They can be explained by behavioral finance:
- The disposition effect: if you own a stock that has gone up in value, you may seek to realize the gain by selling it. After all, it feels good to realize a gain.
52-week-high stocks greatly outperform 52-week low stocks
Value investing's edge is often characterized as pessimism in the presence of poor short-term fundamentals, which causes stocks to become too cheap relative to future expectations.
Perhaps momentum investing's edge could be characterized as pessimism in the presence of strong short-term fundamentals, which causes stocks to remain too cheap to future expectations.
Value is driven by an overreaction problem, in which humans are too quick to draw conclusions from a small amount of recent data. In contrast, momentum is driven by an under-reaction issue, which is the opposite of overreaction.
Momentum investing is not growth investing. Growth investing is characterized by securities that have high prices relative to past fundamentals. We characterize momentum investing as securities that have strong relative performance to all other securities, independent of fundamentals.
Charlie Munger: "Avoid extremely intense ideology because it ruins your mind".
There are two components that drive sustainable success for active investors:
- A keen understanding of human psychology
- A thorough grasp of "smart money" incentives
Value investing, whether driven by a human or a computer, beat the market.
1.Know the fish at the table
2. Know the sharks at the table
3. Find a table with a lot of fish and few sharks.
If one can identify a process with an established edge that requires long-term discipline to exploit (i.e. requires sustainable investors), it is likely that this process will serve as a promising long-term strategy that will beat the market over time.
Many smart investors are hamstrung by the short-term performance measures imposed by them by their investors.
Value investors as a group were destroyed by the market in the late 1990's along with the internet bubble. Generic value investing underperformed the broader market by a large margin for six long years.
Being a value investor requires a patience and faith that few investors possess. In theory, value investing is easy - buy-and-hold cheap stocks for the long haul_but in practice, true value investing is almost impossible.
Classic value investors claim to earn their paycheck by timing the difference between fundamentals and market prices. But what if the market decides to never update their expectations about the intrinsic value of a firm (also known as value trap) ? The value investors need market expectations to change in their favor for the strategy to work. Value investing does not work simply because the investor buys cheap. Value investing works because cheap price-to-fundamental ratios mean revert in favor of the value investor, on average.
Cheap stocks have terrible past earning growth, whereas expensive stocks have had wonderful earnings growth over the past five years. No real surprise there, but it is interesting to see how well the data fits this relationship.
Momentum is relatively uncorrelated with value. Investors can increase their expected risk and reward trade-offs by replacing generic equity allocations with active momentum and value allocations.
Human beings suffer from an inability to properly weigh their chances of success for low probability events. In other words, humans predictably overestimate their chances of winning the lottery. That is at the origin of the low beta anomaly.
Design of a momentum strategy:
Short-term winners are losers in the near-term future, and short-term losers are winners in the near-term future. Overall, when measuring momentum over a short-time horizon (one-month look back), one can expect to see a reversal in short-term future returns.
Long-term momentum (5-years look back) , similar to short-term momentum. leads to reversals in the future.
Intermediate-term (based on 6-12 months look back) momentum works.
Apparently, the best strategy is selecting stocks based on past 12 months performance and holding the position for 3 months. The last month is ignored to account for the short-term reversal effect previously documented.
As a general rule, and putting transaction costs aside, the more frequent a portfolio is rebalanced, the better the performance.
"Smooth" high-momentum stocks tend to perform better than "choppy" high momentum stocks. Momentum strategies that focus on the path-dependency of momentum generate a much stronger momentum effect.
Momentum profits are highest in quarter-ending months, as window-dressing may cause institutional demans flows into high momentum stocks and out of low momentum stocks to show clients a good-looking portfolio.
Tax incentives lead to strong momentum profits in December as winners are unlikely to experience selling pressure and losers are likely to suffer from selling pressure. However, those tax-related flows will be reversed at the beginning of the year.
May 27, 2023
Great! Comprehensive and well researched. Plenty of loose ends about momentum and its sustainability in the preface and introduction to the authors' momentum strategy, but they managed to cover nearly every loose end throughout the book!
What has always pisses me off about momentum is how arbitrary its justification is, if the analyst ties back the rationale for momentum to the behavioural literature. Wes introduces the economic rationale to momentum and value in the preface which is glaringly arbitrary and forced - momentum is caused by investors UNDERreacting to positive news; value is caused by investors OVERreacting to negative news (which is what we've always known). This is obviously arbitrary and is so easy to cherry pick to justify the strategy in hindsight. After all, both overreaction and underreaction is massively documented in the behavioural literature, it's so easy to pick either one to fit your narrative.
Wes adeptly picks up on the reader's potential frustration over this arbitrariness and addresses it head on - tying back to his philosophy of the importance of path dependency of momentum. We sift for quality momentum - stocks that get classified as momentum names in the first place, thru a smooth, gradual price path, over jumpy, attention-grabbing names that we dub 'lottery-like stocks'. He explains this by saying investors display conservatism and anchoring bias in the face of gradual, long streaks of good news, and overreaction and overconfidence bias in a big price jump. Fair play. Nicely reconciles and parts the many documented behavioural biases out there. He even directly acknowledges my biggest ick with these strategies - that of cherry-picking the behaviourals to fit the strategy, because there's simply so many documented behaviourals out there - and acknowledges there's no easy answer and we may never know. What gives? Just make money.
Not super sure that momentum managers would be as constrained from their dumb money LPs as value managers would be, though. How different is momentum even from growth? The value literature keeps reiterating that it's hard to implement value because it's inherently contrarian and managers face the heat from the dumb money, and keeps pointing out how it's easy for managers to chase winners thru growth - LPs won't ever give a manager shit for chasing winners. And now the authors are making a key assumption - which they justify by drawing up the data of long stretches of momentum Rel underperformance - that momentum managers are held back from implementing momentum, thru LP pressure. How hard is it to chase winners? Are growth managers constrained, then? But we almost universally (in the data) know that growth is trash - how come they don't face the heat? Blend goes thru stretches of shitty Rel too, are blend managers constrained, then?
This treatise on momentum also made me think about how the efficient market camp is so quick to point at only subset of the data - that managers don't beat the market, therefore markets are efficient. The authors point out so many ways to measure efficiency, that of to scan for anomalies, like the value, momentum and beta anomalies, and error anomalies like heteroskedasticity and autocorrelation. How can you ever make a case for efficiency using just the shitty returns of active management? The authors reconcile this camp ever so beautifully with the behavioural literature - prices are full of errors and anomalies, yet managers STILL can't beat the market: because of limits to arbitrage, and investor pressure as they put it. After pricing in limits to arbitrage and Rel risk, there's still no free lunch, even in the face of price inefficiencies.
Was always surprised why value and momentum and co-exist nicely. And was always confused why guys like Wes and Cliff Asness co-run value and momentum strats under the same fund. After all, I knew Wes from his work with Tobias Carlisle. How tf can you be a Grahamite value guy while chasing momentum? Why tf do you talk about 'mispricings' under a momentum umbrella - do you even consider 'intrinsic value' at all under momentum? This book nicely made me understand why - the strong diversification benefits of their negative correlations, which I guess is no shit Sherlock. But you could diversify your value with any other negatively correlated asset class! I guess the combo (value + momentum) portfolio makes for a robust equity portfolio itself that sits within a multi-strat.
And why doesn't Wes trade small and microcaps? What's the fucking point of spotting limits to arbitrage then.
Wes also doesn't address (perhaps strategically, sneakily?) the possibility that, within the framework of the EMH, that momentum investors could possibly be taking on a momentum risk premium that justifies the expected returns of the momentum anomaly (the same value risk premium that value guys, within EMH, take on that justifies their returns). He (seemingly?) hints that momentum guys take on added risk (which ties back to his limits of arbitrage of momentum which is why momentum hasn't been arbed away) in the form of higher Vol and drawdowns? Fr? So is MOM Vol and Drawdown consistently higher than VAL Vol and Drawdown? Is MOM Vol consistently higher than growth Vol? We know Value risk is intuitive because value investors have to hunt for shitty companies, but Wes's rationale of the momentum risk is just flimsy.
Fun fact that I didn't know about Wes was that he was actually the author of the famous backtest of VIC picks. And it was actually his PhD dissertation lmfao. I read that paper but I didn't realize the author was Wes.
What has always pisses me off about momentum is how arbitrary its justification is, if the analyst ties back the rationale for momentum to the behavioural literature. Wes introduces the economic rationale to momentum and value in the preface which is glaringly arbitrary and forced - momentum is caused by investors UNDERreacting to positive news; value is caused by investors OVERreacting to negative news (which is what we've always known). This is obviously arbitrary and is so easy to cherry pick to justify the strategy in hindsight. After all, both overreaction and underreaction is massively documented in the behavioural literature, it's so easy to pick either one to fit your narrative.
Wes adeptly picks up on the reader's potential frustration over this arbitrariness and addresses it head on - tying back to his philosophy of the importance of path dependency of momentum. We sift for quality momentum - stocks that get classified as momentum names in the first place, thru a smooth, gradual price path, over jumpy, attention-grabbing names that we dub 'lottery-like stocks'. He explains this by saying investors display conservatism and anchoring bias in the face of gradual, long streaks of good news, and overreaction and overconfidence bias in a big price jump. Fair play. Nicely reconciles and parts the many documented behavioural biases out there. He even directly acknowledges my biggest ick with these strategies - that of cherry-picking the behaviourals to fit the strategy, because there's simply so many documented behaviourals out there - and acknowledges there's no easy answer and we may never know. What gives? Just make money.
Not super sure that momentum managers would be as constrained from their dumb money LPs as value managers would be, though. How different is momentum even from growth? The value literature keeps reiterating that it's hard to implement value because it's inherently contrarian and managers face the heat from the dumb money, and keeps pointing out how it's easy for managers to chase winners thru growth - LPs won't ever give a manager shit for chasing winners. And now the authors are making a key assumption - which they justify by drawing up the data of long stretches of momentum Rel underperformance - that momentum managers are held back from implementing momentum, thru LP pressure. How hard is it to chase winners? Are growth managers constrained, then? But we almost universally (in the data) know that growth is trash - how come they don't face the heat? Blend goes thru stretches of shitty Rel too, are blend managers constrained, then?
This treatise on momentum also made me think about how the efficient market camp is so quick to point at only subset of the data - that managers don't beat the market, therefore markets are efficient. The authors point out so many ways to measure efficiency, that of to scan for anomalies, like the value, momentum and beta anomalies, and error anomalies like heteroskedasticity and autocorrelation. How can you ever make a case for efficiency using just the shitty returns of active management? The authors reconcile this camp ever so beautifully with the behavioural literature - prices are full of errors and anomalies, yet managers STILL can't beat the market: because of limits to arbitrage, and investor pressure as they put it. After pricing in limits to arbitrage and Rel risk, there's still no free lunch, even in the face of price inefficiencies.
Was always surprised why value and momentum and co-exist nicely. And was always confused why guys like Wes and Cliff Asness co-run value and momentum strats under the same fund. After all, I knew Wes from his work with Tobias Carlisle. How tf can you be a Grahamite value guy while chasing momentum? Why tf do you talk about 'mispricings' under a momentum umbrella - do you even consider 'intrinsic value' at all under momentum? This book nicely made me understand why - the strong diversification benefits of their negative correlations, which I guess is no shit Sherlock. But you could diversify your value with any other negatively correlated asset class! I guess the combo (value + momentum) portfolio makes for a robust equity portfolio itself that sits within a multi-strat.
And why doesn't Wes trade small and microcaps? What's the fucking point of spotting limits to arbitrage then.
Wes also doesn't address (perhaps strategically, sneakily?) the possibility that, within the framework of the EMH, that momentum investors could possibly be taking on a momentum risk premium that justifies the expected returns of the momentum anomaly (the same value risk premium that value guys, within EMH, take on that justifies their returns). He (seemingly?) hints that momentum guys take on added risk (which ties back to his limits of arbitrage of momentum which is why momentum hasn't been arbed away) in the form of higher Vol and drawdowns? Fr? So is MOM Vol and Drawdown consistently higher than VAL Vol and Drawdown? Is MOM Vol consistently higher than growth Vol? We know Value risk is intuitive because value investors have to hunt for shitty companies, but Wes's rationale of the momentum risk is just flimsy.
Fun fact that I didn't know about Wes was that he was actually the author of the famous backtest of VIC picks. And it was actually his PhD dissertation lmfao. I read that paper but I didn't realize the author was Wes.
February 2, 2024
The book is like a master's thesis, a lot of hypotheses, data and calculations, but the idea of the book itself is quite interesting. Don't expect to find a golden bullet, after all, you can discover the idea for yourself and apply it practically.
August 29, 2023
While thoroughly researched, Quantitative Momentum by Gray and Vogel offers a rather dry and academic look at the concept of momentum in finance. The authors comprehensively investigate a range of studies on momentum, focusing on key aspects like robustness and replicability. However, the book often feels more like a literature review than an engaging read.
Gray and Vogel succeed in collating and analyzing a wealth of momentum research, especially pertinent papers in finance. They rigorously test the hypotheses put forth in previous studies, building a solid case that momentum is a valid marker for growth in securities.
Yet the book lacks narrative focus and accessible structure. We get lost in the academic minutiae without seeing the big picture. While I applaud the authors’ thorough scholarship, Quantitative Momentum fails to coalesce its findings into definitive conclusions or practical takeaways. It remains firmly rooted in evaluating the literature.
For investors seeking trading insights, Quantitative Momentum will likely disappoint. But as a scholarly chronicle of momentum research, it delivers. Gray and Vogel are meticulous in their analysis of relevant studies. However, their work is better suited as a reference for academics rather than a practical guide. Their contribution lies more in diligence than readability.
In the end, Quantitative Momentum achieves its goal as a comprehensive academic review of momentum studies. Yet it overlooks accessibility and application in pursuit of scholarly rigor. For practical insights, the book falls short. But its utility as a catalog of momentum research remains valuable, if not exactly inspiring.
Gray and Vogel succeed in collating and analyzing a wealth of momentum research, especially pertinent papers in finance. They rigorously test the hypotheses put forth in previous studies, building a solid case that momentum is a valid marker for growth in securities.
Yet the book lacks narrative focus and accessible structure. We get lost in the academic minutiae without seeing the big picture. While I applaud the authors’ thorough scholarship, Quantitative Momentum fails to coalesce its findings into definitive conclusions or practical takeaways. It remains firmly rooted in evaluating the literature.
For investors seeking trading insights, Quantitative Momentum will likely disappoint. But as a scholarly chronicle of momentum research, it delivers. Gray and Vogel are meticulous in their analysis of relevant studies. However, their work is better suited as a reference for academics rather than a practical guide. Their contribution lies more in diligence than readability.
In the end, Quantitative Momentum achieves its goal as a comprehensive academic review of momentum studies. Yet it overlooks accessibility and application in pursuit of scholarly rigor. For practical insights, the book falls short. But its utility as a catalog of momentum research remains valuable, if not exactly inspiring.
May 3, 2018
This book is well researched and well written. The author has rigorously analyzed applications of the Quantitative Momentum strategies suggesting that this kind of strategy has a great potential and should be a part of the "traditional" investment portfolio. The book discusses to some extent why momentum strategies are having a hard time of getting in those portfolios. For anyone considering a momentum strategy with its potential to outperform other strategies, this is definitely a great book to read.
May 2, 2021
Apt and practical for a quant analyst who wants to understand the momentum factor.
The book is well researched with all the sources. You can dig deeper once you understand the basics. Authors have spent their lives understanding this space and now giving their knowledge to the world.
The book is well researched with all the sources. You can dig deeper once you understand the basics. Authors have spent their lives understanding this space and now giving their knowledge to the world.
February 9, 2018
As a fundamental investor I started this book with mixed expectations.
I thoroughly enjoyed the book. It explained momentum investing very well for beginners and also why it works. The theory was backed by thorough research. Also the tradeoffs in investing (to avoid big drawdown one has to compromise on returns) were clearly documented.
I thoroughly enjoyed the book. It explained momentum investing very well for beginners and also why it works. The theory was backed by thorough research. Also the tradeoffs in investing (to avoid big drawdown one has to compromise on returns) were clearly documented.
March 30, 2023
Grey and Vogel wrote an interesting book, examining the momentum factor. There are a lot of studies already talking about this market anomaly: When stuff trends in one direction, whether up or down, it often continues to do so rather than behave randomly.
What they add to the existing literature is an interesting concept they refer to as frog-in-pan. Basically, momentum is more likely to persist, when it happens under the radar. It works like this:
To calculate the FIP returns, you need to follow these steps:
1) Compute daily returns: Calculate the daily percentage returns for each stock in your investment universe. Daily return is calculated as (Today's Price - Yesterday's Price) / Yesterday's Price.
2) Calculate absolute daily returns: Take the absolute value of the daily percentage returns, ignoring the positive or negative sign. This represents the magnitude of the daily return.
3) Compute the average absolute daily return: Calculate the average of the absolute daily returns over a specific period, typically 12 months. This will give you an idea of how volatile the stock's daily returns are.
4) Calculate the total return over the same period: Compute the cumulative return for the stock over the same period (e.g., 12 months). This can be calculated as (Final Price - Initial Price) / Initial Price.
5) Divide the total return by the average absolute daily return: This step gives you the frog-in-the-pan (FIP) return. A higher FIP return indicates that the stock has experienced a slow, steady rise in price with relatively low daily volatility.
FIP returns can be used as a momentum factor in stock selection, with the idea being that stocks with high FIP returns are more likely to continue their upward trend due to their "under-the-radar" nature.
I wrote a small python script to automate the calculation of this specific type of return. You need to feed a dataframe ("df") into it that consists of the daily prices of a stock:
df['positive'] = df['Adj Close'].pct_change().fillna(0) > 0
df['sum_positive'] = df['positive'].rolling(252, min_periods=1).sum()
df['share_positive'] = df['sum_positive'] / 252
df['stock_12m_return'] = (df['Adj Close'] / df['Adj Close'].shift(252))-1
df['FIP'] = df['stock_12m_return'] * (df['share_positive'] * (1 - df['share_positive']))
What they add to the existing literature is an interesting concept they refer to as frog-in-pan. Basically, momentum is more likely to persist, when it happens under the radar. It works like this:
To calculate the FIP returns, you need to follow these steps:
1) Compute daily returns: Calculate the daily percentage returns for each stock in your investment universe. Daily return is calculated as (Today's Price - Yesterday's Price) / Yesterday's Price.
2) Calculate absolute daily returns: Take the absolute value of the daily percentage returns, ignoring the positive or negative sign. This represents the magnitude of the daily return.
3) Compute the average absolute daily return: Calculate the average of the absolute daily returns over a specific period, typically 12 months. This will give you an idea of how volatile the stock's daily returns are.
4) Calculate the total return over the same period: Compute the cumulative return for the stock over the same period (e.g., 12 months). This can be calculated as (Final Price - Initial Price) / Initial Price.
5) Divide the total return by the average absolute daily return: This step gives you the frog-in-the-pan (FIP) return. A higher FIP return indicates that the stock has experienced a slow, steady rise in price with relatively low daily volatility.
FIP returns can be used as a momentum factor in stock selection, with the idea being that stocks with high FIP returns are more likely to continue their upward trend due to their "under-the-radar" nature.
I wrote a small python script to automate the calculation of this specific type of return. You need to feed a dataframe ("df") into it that consists of the daily prices of a stock:
df['positive'] = df['Adj Close'].pct_change().fillna(0) > 0
df['sum_positive'] = df['positive'].rolling(252, min_periods=1).sum()
df['share_positive'] = df['sum_positive'] / 252
df['stock_12m_return'] = (df['Adj Close'] / df['Adj Close'].shift(252))-1
df['FIP'] = df['stock_12m_return'] * (df['share_positive'] * (1 - df['share_positive']))
February 25, 2024
My take on things is that the quality of a stock is rooted in profitability to get a ballpark rating of it. But the whole picture is knowing that two factors matter the most
the growth and the profitability
I've come to accept that momentum is a factor that helps you make a buying decision along with price. Because you might buy a cheap stock, but it might take months if not years to get your money back. [and maybe a lynch chart too]
As for selling a stock, if you can predict it's fair value you got it made. You know if it's cheap or expensive
and you sell when your $200 stock when it's predicted fair value hits $200.
..........
In short my take on momentum is this:
If a stock looks cheap, i'll give it a value of a 9.
And if the momentum is a 10.
I will say, assuming this is a quality stock, that's a 95 out of 100 gut feeling to buy it, and a 5% hesitation to say no.
.........
but if a stock is cheap and i give it a value of 10.
and the momentum is a 1.
I will say, assuming this is a quality stock, that's an 55 out of 100 in my gut to buy it, and a 45% hesitation factor to say no.
since 10+1 = 11, and that's 11 out of 20 = which is 5.5/10
And momentum can look a year back and how things were going month by month, overall
and you can looksix months bck, to see if it was rising or falling or sideways too
and even like 5 days ahead or 14 days ahead...
like you can break down the momentum to look at it weekly, bi-monthly, the past six months or past year, and use crazy formulas to get some number, or let the tube powered UNIVAC 3000 spit it out for $200 a month, if you don't have the book collection and slide rules to calculuate it out with your eyes closed.
..........
Pretty much that's what i've done for 5 years on paper looking at the S&P 500
1 pretty much kick out all the low profit and low growth companies
2 look for the cheap ones with momentum and buy
3 sell it when the fair value prediction is reached, also known as 'hey it's not undervalued anymore'
and since this is about momentum
4 if you look at momentum you can buy a stock and sell it in weeks or months, if you have to
5 if you don't look at momentum you can buy a stock and sometimes wait years for it to jump upwards
November 2, 2021
Sách theo tư tưởng thực dụng: không quan trọng phân tích kỹ thuật hay nền tảng, kiếm được tiền là tốt.
Trong những chương đầu, tác giả trình bày quan điểm về thị trường ngắn hạn: nó không thể dự đoán được do có quá nhiều kẻ ngốc tham gia đầu tư và làm cho nó trở nên hỗn độn. Cơ hội giao dịch ăn chênh lệch ngắn hạn vẫn có nhưng đi kèm nó là rủi ro cao tương ứng. Chỉ có đầu tư dài hạn, theo xu hướng là con đường đúng đắn.
Thế nhưng tại sao đầu tư dài hạn lại khó, những nhà đầu tư nhỏ lẻ đa số đều phi lý trí và không tìm được phương pháp hoặc không có đủ kiên nhẫn để kỷ luật thời gian dài. Với quản lý quỹ lớn, họ thường theo đuổi mục tiêu ngắn hạn để đạt các tiêu chuẩn về rủi ro cũng như khẩu vị của các khách hàng.
Bằng việc phân tích định lượng, các tác giả đã tìm ra một công thức giao dịch chủ động "định lượng động lượng" (quantative momentum :v), có hiệu năng vượt qua đầu tư giá trị (value investing B/M) hay đầu tư tăng trưởng (growth investing B/M). Tinh chỉnh theo mùa và đa dạng hoá, công thức như sau:
- Đa dạng hoá khoảng 40-50 stocks
- Chọn cổ phiếu theo động lượng trung bình 12 tháng, bỏ tháng gần nhất
- Tái cấu trúc tháng cuối quý, năm giao dịch 4 lần
- Kết hợp với một danh mục đầu tư giá trị để đa dạng hoá lần 2.
Công thức này được các tác giả back test kỹ với các thị trường từ đông sang tây, âu tới á, và tốt hơn index lẫn vài công thức được so sánh kèm.
https://t0an.blogspot.com/2021/11/boo...
Trong những chương đầu, tác giả trình bày quan điểm về thị trường ngắn hạn: nó không thể dự đoán được do có quá nhiều kẻ ngốc tham gia đầu tư và làm cho nó trở nên hỗn độn. Cơ hội giao dịch ăn chênh lệch ngắn hạn vẫn có nhưng đi kèm nó là rủi ro cao tương ứng. Chỉ có đầu tư dài hạn, theo xu hướng là con đường đúng đắn.
Thế nhưng tại sao đầu tư dài hạn lại khó, những nhà đầu tư nhỏ lẻ đa số đều phi lý trí và không tìm được phương pháp hoặc không có đủ kiên nhẫn để kỷ luật thời gian dài. Với quản lý quỹ lớn, họ thường theo đuổi mục tiêu ngắn hạn để đạt các tiêu chuẩn về rủi ro cũng như khẩu vị của các khách hàng.
Bằng việc phân tích định lượng, các tác giả đã tìm ra một công thức giao dịch chủ động "định lượng động lượng" (quantative momentum :v), có hiệu năng vượt qua đầu tư giá trị (value investing B/M) hay đầu tư tăng trưởng (growth investing B/M). Tinh chỉnh theo mùa và đa dạng hoá, công thức như sau:
- Đa dạng hoá khoảng 40-50 stocks
- Chọn cổ phiếu theo động lượng trung bình 12 tháng, bỏ tháng gần nhất
- Tái cấu trúc tháng cuối quý, năm giao dịch 4 lần
- Kết hợp với một danh mục đầu tư giá trị để đa dạng hoá lần 2.
Công thức này được các tác giả back test kỹ với các thị trường từ đông sang tây, âu tới á, và tốt hơn index lẫn vài công thức được so sánh kèm.
https://t0an.blogspot.com/2021/11/boo...
May 16, 2017
Great book, definitely convince me that momentum investing 'works'.
Deep evidence based analysis of the merit of momentum and different approaches to it. As well as interesting discussions of why it happens.
Possible reasons are, people tend to underestimate the impact of steady good news and thus increasing prices reflect the slow incorporation of that information into prices.
Interesting part as well is that the seemingly arbitrary choice of which specific months to reblalance (say for quarterly rebalancing) can have a significant impact as there is seasonality in the market. Generally you want to rebalance the month before calendar quarter end.
Finally it discusses the role of momentum in a portfolio. Specifically it is a great diversifier for value strategies and a combination of these strategies is easier for an invest to hold and reduces large period of relative underperformance.
Deep evidence based analysis of the merit of momentum and different approaches to it. As well as interesting discussions of why it happens.
Possible reasons are, people tend to underestimate the impact of steady good news and thus increasing prices reflect the slow incorporation of that information into prices.
Interesting part as well is that the seemingly arbitrary choice of which specific months to reblalance (say for quarterly rebalancing) can have a significant impact as there is seasonality in the market. Generally you want to rebalance the month before calendar quarter end.
Finally it discusses the role of momentum in a portfolio. Specifically it is a great diversifier for value strategies and a combination of these strategies is easier for an invest to hold and reduces large period of relative underperformance.
November 4, 2023
Overly verbose, overly repetitious and overly academic. Many terms are not defined, for example there is no definition of alpha. Written in the first person plural. Both authors have PhDs, but the writing style is geared towards the aspiring investor, not the financially trained. Some calculation mistakes: a monthly return of 1.03% equates to 13% per annum, not 12%. Circa two-thirds of the content is immaterial to the subject matter and with that removed and proper definitions added, I might even be able to recommend this book.
I worked through the examples using US stock data from 1998 to 2013 to see if the stop loss strategies from Appendix A actually held water. Top 10% momentum of 500 stock universe over 6-month lookback and gross of fees yielded similar results: adding a stop loss indeed has a limited effect on overall profitability, but it depends on the risk appetite. With equal initial capital, a lower percentage, say 5% instead of 10%, reduces the diversification effect and hence increases the portfolio value variability.
I worked through the examples using US stock data from 1998 to 2013 to see if the stop loss strategies from Appendix A actually held water. Top 10% momentum of 500 stock universe over 6-month lookback and gross of fees yielded similar results: adding a stop loss indeed has a limited effect on overall profitability, but it depends on the risk appetite. With equal initial capital, a lower percentage, say 5% instead of 10%, reduces the diversification effect and hence increases the portfolio value variability.
August 9, 2018
I have to admit, I'm leaving somewhat unconvinced.
There is a bit of thinking to be done to bring "value" (both in the academic/Schiller sense and the more Buffet/Munger style) and "momentum" in the line.
And while it seems possible without your head exploding in a self-contradiction, the case for momentum somehow feels... less convincing. The behavioral explanation sounds weak, the back-tests are OK (though do not let you sleep completely soundly), Japan is still worrying.
Nonetheless - the book is well written, well researched, does not try to cover the ugly questions.
But to me the whole case does not sound completely convincing.
There is a bit of thinking to be done to bring "value" (both in the academic/Schiller sense and the more Buffet/Munger style) and "momentum" in the line.
And while it seems possible without your head exploding in a self-contradiction, the case for momentum somehow feels... less convincing. The behavioral explanation sounds weak, the back-tests are OK (though do not let you sleep completely soundly), Japan is still worrying.
Nonetheless - the book is well written, well researched, does not try to cover the ugly questions.
But to me the whole case does not sound completely convincing.
December 23, 2019
A great book on momentum investing! Clearly explains how momentum investing is not growth investing and empowers you to build a quantitative momentum strategy. Authors do a great job of providing empirical evidence to show how momentum investing is here to stay and how an average investor can have take advantage of it. Authors also explain how value investors can combine value investing with a momentum strategy to generate huge returns over the long term. Must read!
December 18, 2016
Great summary of the current perspective on momentum investing. While the ride can be a bit bumpy, the results have historically been dramatically better than conservative buy and hold investing.
I have added an enhancement which turbocharges results and am working on a manuscript to be published in the next year or so...
I have added an enhancement which turbocharges results and am working on a manuscript to be published in the next year or so...
August 2, 2020
Buon libro di trading.
La teoria degli autori viene ampiamente spiegata e sembra avere basi solide, anche l’eventuale applicazione pratica viene eviscerata nel dettaglio e pure possibili alternative vengono esaminate e confrontate attentamente.
Di sicuro è un libro su cui riflettere e che vale la pena cercare di mettere in pratica.
La teoria degli autori viene ampiamente spiegata e sembra avere basi solide, anche l’eventuale applicazione pratica viene eviscerata nel dettaglio e pure possibili alternative vengono esaminate e confrontate attentamente.
Di sicuro è un libro su cui riflettere e che vale la pena cercare di mettere in pratica.
September 1, 2024
Momentum investing works
Well written book. Plenty of charts to confirm their research and back testing. Momentum combined with a value portfolio is the optimal combination. Highly recommend the book for those who want to learn how to incorporate momentum into a portion of their portfolio.
Well written book. Plenty of charts to confirm their research and back testing. Momentum combined with a value portfolio is the optimal combination. Highly recommend the book for those who want to learn how to incorporate momentum into a portion of their portfolio.
July 16, 2017
Succinct summary of momentum investment
The authors studied all papers on the topic of momentum investment and summarised everything to this 200 pages book in a practical fashion. The book offers insight for someone who didn't know much about momentum investing.
The authors studied all papers on the topic of momentum investment and summarised everything to this 200 pages book in a practical fashion. The book offers insight for someone who didn't know much about momentum investing.
December 3, 2017
Excellent research as is to be expected from Dr. Wes Gray. Transparent and thorough review of momentum investing literature as well as the authors selected approach. However, a little more complicated and maybe a little less robust than 'Quantitative Value'
December 19, 2017
Meaty and filling but hard on the digestive tract. Goes down easier after I regurgitate it a couple times and spice it up a bit. Definitely more satisfying than my last Gray meal and pairs better with GAINNNNNSSSS
April 1, 2025
It present research that Momentum Style works to provide superior returns but no explanation of how to select stocks that can gain momentum so one can profit from Markets. Title is misleading, better for teaching theory of momentum investing but lack practical examples of specific stocks.
October 6, 2017
A great read for people interested in finance and investing...
October 20, 2017
Amazing read. Informative. Well written!
March 4, 2018
Basics of momentum, and my own backtests showed materially different results
August 11, 2018
Well researched piece with plenty of examples to show momentum investing works. However, i don’t think I’ll be able to benefit as an individual investor with a day job.
January 24, 2021
Superb!!!!
October 15, 2021
Easy to read. Gray makes a clear and compelling case for equal-weighted concentrated momentum portfolios of roughly 50 stocks. Will possibly become 20% of our portfolio.
June 3, 2022
Wes and Jack are fantastic researchers and great writers. Momentum and Value effects are real. If you’re interested in learning more - this is the book for you.
March 30, 2023
As a beginner in trading, I found this book was very helpful
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