Aug 12, 2021
While stock momentum, which goes long past winners (and short past losers), is the basis for many factor indexes, industry momentum has been largely ignored. In this paper, we expand on previous research and show the existence of industry momentum within a broad global universe and investigate its relationship with stock momentum, including analysis of how the industry momentum factor’s return was smooth with almost negligible drawdown during our study period and how combining it with stock momentum helped the overall performance of the factor. We further show how the industry-momentum premium could have been extracted in a long-only strategy.
Industry Momentum Was Smoother than Momentum
Cumulative monthly returns from June 1995 to May 2021