The Theme Structure of Factor Momentum

The long-short factors of the global factor zoo are far less distinct than their number suggests: roughly 153 factors collapse into about thirteen near-uncorrelated economic themes. Compressing factor momentum to the theme level leaves the strategy intact and sharpens the cross-sectional pricing evidence, and a decomposition shows where its profits come from — persistence within a theme rather than lead-lag effects across themes. A placebo removal exercise rules out the obvious alternative: factor momentum is not concentrated in a handful of stocks, so it cannot be dismissed as a by-product of a few dominant names.

Working Paper (University of Liechtenstein)