Make money doing the work you believe in
Sharpe ratio from 0.61 to 1.05. Same strategy. Just remove the risk you're not getting paid for.
A new paper shows that 81.5% of momentum's risk is unpriced — systematic exposure to common factors that adds volatility but earns nothing.
The fix? A cross-sectional hedge that isolates firm-specific momentum in real time. The result:
Crashes nearly vanish,
Alpha becomes highly significant (t-stat = 6.35),
Factor momentum no longer "explains" stock momentum — that was just shared noise,
Volatility management works because it implicitly hedges this unpriced risk.
The punchline: decades of papers claiming momentum is redundant were biased by an omitted variable hiding in plain sight.
Feb 6
at
2:07 AM