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A look under the hood of momentum funds

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  • Banegas, Ayelen
  • Rosa, Carlo

Abstract

Momentum investing has surged over the past few years. Using a comprehensive dataset of US equity funds, this paper examines the economic value of momentum funds. Overall, we find that risk-adjusted returns of momentum funds are, on average, negative, and most of the time series variation of those returns is explained by exposure to the market factor. Furthermore, momentum funds do not improve the performance of investors who already invest in Fama–French factors. Finally, we show that the long-only nature of momentum funds appears to be a key driver of their negative alpha, while market frictions explain only part of it.

Suggested Citation

  • Banegas, Ayelen & Rosa, Carlo, 2022. "A look under the hood of momentum funds," Economics Letters, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:ecolet:v:217:y:2022:i:c:s0165176522002117
    DOI: 10.1016/j.econlet.2022.110654
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    References listed on IDEAS

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    More about this item

    Keywords

    Momentum; Mutual funds; Fama–French factors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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