Justin and I submitted a paper for the NAAIM Wagner 2016 competition.  Unfortunately, it didn't place.  The good news is that we can share it with everyone that much earlier!

The paper is about trying to time factor premiums using the same behavioral biases that we believe cause them.  Here is the abstract:

When outperformance fixation
leads to large inflow temptation:
premiums erode,
investors unload,
enabling factor rotation!


Our big takeaways:

  • Before trading costs, applying momentum and value approaches to factors themselves appears to generate excess return.
  • The approach does not work when anti-factors (e.g. buy expensive stocks) are introduced.
  • The excess return generated is pretty small: you're likely better off just holding a diversified set of factors.


You can download the paper here.