Hanlin Yang, University of Zurich
ABSTRACT: The factor momentum portfolio is decomposed into a factor timing portfolio and a buy-and-hold portfolio, where the former collects the return from time-series predictability and the latter collects the return due to the cross-sectional dispersion of factor returns. Based on a large set of stock return factors, I document rich evidence that factor return predictability is empirically too weak to produce timing benefits. The buy-and-hold portfolio accounts for a dominant fraction of the factor momentum return and outperforms in risk-adjusted returns. This outperformance is robust to portfolio formation and survives post-publication decay of factor returns.