Thursday, August 7, 2008

Alpha Persistence & A Simple Momentum System For Beating the Market

From World Beta-Engineering Targeted Returns and Risk:

Alpha persistence in long short hedge funds. This study gives a lot of support to the upcoming AlphaClone software launch.

This is similar to private equity, where the top funds continue to outperform. Why doesn't this happen in mutual funds? A couple reasons (including index hugging), but the simplest is the capitalism 101 - the $ attracts the best talent.

Now, on to momentum...

Efficient market theorists have long been puzzled by momentum, and exclaim that it should not be possible to make money from buying past winners and selling past losers in well-functioning markets. Practitioners have been ignoring these efficient market theorists and collecting money for decades. There are probably more academic pieces written on momentum than almost any other subject in finance. (Besides the efficient market hypothesis of course.) I count nearly 900 when searching momentum on the SSRN....MORE