Predicting Stock Returns Using Industry-Relative Firm Characteristics

This paper by Asness, Porter & Stevens (2000) examines return measures when explanatory variables into two industry-related components; within-industry variables and across-industry variables.  This paper helps explain why Atlas uses short-term momentum within sectors, but short-term reversal within individual securities.  It also elucidates the rationale for scoring momentum and value “within” sectors rather than across them.

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Common Risk Factors in the Returns on Stocks and Bonds

This well-known 1992 paper by Eugene Fama and Ken French puts forward a model explaining US equity market returns with three factors: “the “market” (based on the traditional CAPM model), the size factor (small vs. large capitalization stocks) an the value factor (high vs. low book-to-market).

On Persistence in Mutual Fund Performance

This 1997 piece by Mark Carhart suggests that funds with high returns last year have higher-than-average expected returns next year, but not in years thereafter. This work has been an important add-on to the Fama and French model, showing momentum to be a key factor contributing to stock outperformance.  It also shows that the investment costs of expense ratios, transaction costs, and load fees all have a direct, negative impact on performance.

Value and Momentum Everywhere

This 2013 article by Asness, Moskowitz and Pedersen finds consistent value and momentum return premia across eight diverse markets and asset classes. Also shows is that value and momentum are negatively correlated with each other, both within and across asset classes.