I am wondering what methodology exists to check if a fund/portfolio is having momentum bias or chasing the past performance, assuming you have their full returns and full portfolio holdings for past 12 months(weights and stock names for each month)

I can think of two methods: 1) Run regression of the returns against momentum factor, such as Fama French momentum factor. The problem is that it is a statistical analysis and may not give the complete answer.

2) Look at the holdings for each month. For each stock, see the weight change from the previous month. If the weight increased, let's say, more than 1%, check the stock's previous prices. If the stock had a price increase in the previous month, quarter, or year and the fund increased the weight of the stock the following month, it may mean that they're following momentum strategy.

Are there papers/sources I can read about this?


1 Answer 1


It kind of depends what your objective is. First, momentum 'bias' isn't well-defined. Are you looking to eliminate momentum exposure for some reason? Momentum itself isn't even well-defined really: momentum over the trailing 1 year? Trailing 6m? Looking over 3-5y periods where mean-reversion is more at play?

Generally, in the absence of a clearer intention, regression against FF or AQR, among others, factors is a reasonable place to start, particularly if done as a multiple regression so you get a clearer sense of your overall exposures (ie, if all you factors have huge loadings, a smaller, albeit significant, momentum loading isn't likely as big a deal).


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