Factor Momentum

This is not scientific at all, but I thought I'd relate my own anecdotal experience with factor momentum. I broke my factors down into seven general categories and created a way to change their weights depending on factor performance over the last nine months or so. The end result was so much turnover that it seriously damaged my performance.

I came up with an alternative a little while later, and that is to use a few "flip factors" in my ranking system. These are conditional factors that flip between a value factor and a growth factor depending on whether the recent performance of $SPALLPV (S&P 1500 pure value) is better than the recent performance of $SPALLPG (S&P 1500 pure growth). Many of these conditional factors backtest better than either of the included factors alone. This is a very lagging indicator, but because the trends tend to last a while, it seems better than nothing.

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