{"id":2095823,"date":"2018-12-31T13:31:33","date_gmt":"2018-12-31T08:01:33","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2095823"},"modified":"2019-01-01T10:21:21","modified_gmt":"2019-01-01T04:51:21","slug":"why-anomalies-persist","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2018\/12\/31\/why-anomalies-persist\/","title":{"rendered":"Why Anomalies Persist"},"content":{"rendered":"

Academics label momentum as an “anomaly.” Multiple studies have shown that this anomaly has persisted over long periods of time and across markets (AA<\/a>). Based on this insight, quite a few quantitative momentum funds sprung up. And since nothing good is ever left alone at Wall Street, a whole bunch of momentum factor ETFs launched to ride the wave during the recent bull market. Currently, there are more than 40 momentum ETFs listed in the US. <\/p>\n

So, does this mean that the momentum anomaly has been arbitraged out? After all, with over $12 billion in momentum ETFs alone, shouldn’t the strategy have topped out? We posit that it is unlikely to happen anytime soon. Why? Because investors just can’t help themselves.<\/p>\n

Consider the asset under management (AUM) of these momentum ETFs. If, for an ETF, the price is down 10% and its AUM is down 20% over the same period, it means that there has been a net outflow of 10%. If you run this math on all the momentum ETFs traded in the US since October this year, you end up with about $2 billion in outflows in 3 months. That is roughly 11.5% of momentum assets on the 1st of October.<\/p>\n

It has been well documented that investors chase performance, often piling into “hot” funds and strategies and exiting on the slight whiff of under-performance. We are seeing this in action on momentum ETFs. And as long as investors are caught in this doom-loop, momentum (and by extension, value, investment and volatility anomalies) will persist.<\/p>\n

Also read: Investor education is a waste of time (Aug, 2014)<\/a><\/p>\n

Code and data are on github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Academics label momentum as an “anomaly.” Multiple studies have shown that this anomaly has persisted over long periods of time and across markets (AA). Based on this insight, quite a few quantitative momentum funds sprung up. And since nothing good is ever left alone at Wall Street, a whole bunch of momentum factor ETFs launched … <\/p>\n","protected":false},"author":2,"featured_media":2091813,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3251,3491],"class_list":["post-2095823","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-behavioral-finance","tag-momentum","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2095823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2095823"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2095823\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091813"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2095823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2095823"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2095823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}