Quantitative Momentum, Wesley Gray/Jack Vogel, 2016 - This book was a good primer on the concept but I found it lacking in both breath and depth. It many times reminded me of ‘Magic Formula Investing’ book which had a simple concept for picking and rule for rebalancing. It defines what it means by momentum, something it calls “generic momentum” and then goes onto filter it out for smooth/jumpy momentum and calls it quantitative momentum, then analyses a bit on how varying the lookback period and holding period affects returns. The strategy’s universe is US large/mid cap stocks.
Short-story shorter, long-term momentum (3-5 yr momentum, held for 3-5 years) and short-term momentum (1 week/month momentum held for next week/month) both mean-revert because of too much expectations built into the price while intermediate-term momentum, i.e 12 month momentum, held for a period of 3 months is where the muffin top is. I liked how the book started in terms of reasoning why gaps existed in terms of behavioral biases, frictional costs and agency costs (fund managers avoiding career risk) and the fact that momentum investing is not that different from value investing, because they both exploit the same behavioral biases of the market. In fact it suggests having a momentum portfolio, along with a value portfolio (and use trend-following to avoid large drawdowns).
I thought it should have explored more on using SUE/CAR3 earnings momentum, reading market weather (which it does using a simple moving average), effects of equi-weight vs value-weight, other methods of allocation (say earnings-weight) and so on. It is still a very good introduction to the subject. 8/10