Larry Swedroe: Different Kind Of Momentum

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Random Walker
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Joined: Fri Feb 23, 2007 8:21 pm

Larry Swedroe: Different Kind Of Momentum

Post by Random Walker » Tue Oct 03, 2017 11:58 pm

http://www.etf.com/sections/index-inves ... nopaging=1

Larry discusses Time Series Momentum in this article, with special attention to TS Momentum for equities in equity bear markets. Overall TS Mom has about 0 correlation to equity market beta but the correlation tends to turn negative in equity bears, just when it is needed most.
In this article Larry limits his discussion to equities. But TS Momentum is present in a variety of asset classes, and the correlations between TS Momentum of the different asset classes is virtually zero as well. TS Momentum of several different asset classes can be accessed through a single fund.
Larry comments that TS Momentum is quite tax inefficient, and therefore should be held in tax advantaged space. I would comment though, that for those who are a little adventurous, it could be reasonable to create a TS Momentum position from a small portion of one's Municipal Bond holdings in a taxable account.

Dave

Random Walker
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Re: Larry Swedroe: Different Kind Of Momentum

Post by Random Walker » Wed Oct 04, 2017 12:01 am

For those who would like to read more, I recommend this white paper from AQR. Make sure to check out the smile curve.

https://www.aqr.com/-/media/files/paper ... esting.pdf

Dave

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TD2626
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Re: Larry Swedroe: Different Kind Of Momentum

Post by TD2626 » Wed Oct 04, 2017 12:36 am

Thanks for posting both the Swedroe article and the AQR paper; I read through both.

While the research seems thorough, it is in my opinion concerning. Indeed, I feel some of the things that are being advocated by proponents "smart-beta" and heavily factor tilted strategies is concerning.

I value Swedroe's insight and analysis a lot. However, some of his ideas - involving investing in reinsurance (just before the hurricanes!), investing in peer-to-peer lending, apparently discussing shorting volatility (here:http://www.etf.com/sections/index-inves ... g-downside) and this article on momentum all concern me.

People often ask "what if everyone indexed". I don't think that high levels of indexing is a large issue. There don't need to be that many arbitragers to keep ETF share prices in line with the values of underlying assets, just as there don't need to be that many active traders to keep prices efficient by performing price discovery.

What would be an issue though, is "what if everyone pursued a momentum strategy?". If everyone pursued a momentum strategy, in my opinion, the results would be terrifying.

vencat
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Re: Larry Swedroe: Different Kind Of Momentum

Post by vencat » Wed Oct 04, 2017 3:12 pm

I value Swedroe's insight and analysis a lot. However, some of his ideas - involving investing in reinsurance (just before the hurricanes!), investing in peer-to-peer lending, apparently discussing shorting volatility (here:http://www.etf.com/sections/index-inves ... g-downside) and this article on momentum all concern me.
I'm a great admirer of Larry but would be cautious as he is not infallible. After all he was quite wrong about commodities!
As far as 'evidence/academic based investing' which he strongly espouses, I always remember the following quote:
It is always well, before handing the cup of knowledge to the young, to wait until the froth has settled.

Random Walker
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Re: Larry Swedroe: Different Kind Of Momentum

Post by Random Walker » Wed Oct 04, 2017 3:30 pm

We are all fallible! Sounds like a good reason to diversify across as many potential sources of return as possible. :-)

Dave

avalpert
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Re: Larry Swedroe: Different Kind Of Momentum

Post by avalpert » Wed Oct 04, 2017 3:37 pm

Random Walker wrote:
Wed Oct 04, 2017 3:30 pm
We are all fallible! Sounds like a good reason to diversify across as many potential sources of return as possible. :-)

Dave
I don't think it really sounds like a good reason to do that - at least not without convincing evidence that the theoretical sources of return are truly investable - I think some fallible people may be too quick to jump on a given source-of-return bandwagon in an attempt to chase diversification.

brentflog
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Re: Larry Swedroe: Different Kind Of Momentum

Post by brentflog » Wed Oct 04, 2017 8:27 pm

Trend following managers have been around for several decades.

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