Case at the AQR’s Momentum Funds (The Momentum Effect)

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Questions for Case at the AQR’s Momentum Funds (The Momentum Effect)

  1. Is it important to know the economic explanation of a profitable investment strategy? In other words, why not just simply invest in some ideas like momentum and make money without caring too much about its underlying reasons?
  2. Is Momentum a risk or a behavioral bias rooted in human minds? Is market efficient or not efficient given momentum is there? What are the criterions for you to judge whether the price/return of momentum portfolios is efficient?
  3. What are the rational and irrational reasons you think that can generate the momentum return?
  4. Extension of the momentum idea into the time series of returns: Japanese stock market has strong long term trend. For example, in the figure below, it steadily increases from 1984 to 1990 and then gradually declines afterwards. If you are a momentum trader, can you benefit from the price movements in both directions over the time period below? How should you design your momentum strategy? Can your momentum strategy always make money? Under what situations or time periods, you strategy will most likely lose money?


  1. Double space with font size 11 or 12
  2. Each person can either turn in your individual write-up or form a group of no more than 4 people to discuss the case. If your group agrees on the answer to every question, you can turn in one single write-up with every group member’s name on it. Otherwise, you can still choose to prepare your own individual write-up.
  3. Due in the beginning the case session. Please do not submit your write-up through the Blackboard. Please hand in them directly at the beginning of the case session.
  4. Be prepared to present/discuss your answers.
  5. The link to download this case is the following


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