Aaron Brown, Columnist

Quant Momentum Strategy Is Being Maligned Unfairly

Over the long run, betting that things will continue as they have in the recent past is like being the casino in roulette: You lose a lot of bets, but you end up winning more than you lose.

February 15, 2022 at 10:00 AM UTC

By Aaron Brown

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms. He is the author of the soon-to-be-released "Wrong Number."

It’s hard to beat momentum.
Photographer: Tom Pennington/Getty Images

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The two oldest investment strategies are to buy things that are cheap (value) and buy things that are going up (momentum). These ideas long predate modern financial theory and were as popular among cigar-chomping, shirt-sleeve, high-school-dropout traders in the Chicago pits as the pipe-smoking, tweed-jacketed PhDs in the University of Chicago faculty club.

A recent paper — “A Look Under the Hood of Momentum Funds” by Federal Reserve economist Ayelen Banegas and University of Calabria researcher Carlo Rosa — attacks momentum investing using a curiously circular argument. Momentum has performed badly during the pandemic era, principally because trends keep reversing. The market crashes in March 2020 and then rebounds almost immediately. The first Covid-19 wave in the spring of 2020 sends investors fleeing energy, travel and movies in favor of healthcare, streaming and on-line shopping.