A look under the hood of momentum funds

Ayelen Banegas and Carlo Rosa

Economics Letters, 2022, vol. 217, issue C

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.

Keywords: Momentum; Mutual funds; Fama–French factors (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:217:y:2022:i:c:s0165176522002117

DOI: 10.1016/j.econlet.2022.110654

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