Case 2 A
For the exclusive use of J. Dababneh, 2015.
9 -2 1 1 -0 2 5
REV: MARCH 29, 2012
DANIEL BERGSTRESSER
LAUREN COHEN
RANDOLPH COHEN
CHRISTOPHER MALLOY
AQR's Momentum Funds (A)
In early 2009, after significant research and reflection, Cliff Asness, founder and principal at AQR, was considering the launch of three new retail mutual funds that would offer investors exposure to
‘Momentum,’ a new investment style. While momentum strategies were commonplace among hedge funds, the new AQR funds would become the first retail funds to focus on this strategy.
The Momentum Strategy
AQR defined stock momentum as ‘the phenomenon that stocks which have performed well in the past relative to other stocks (winners) continued to perform well in the future, and stocks that have performed relatively poorly (losers) continue to perform poorly.’ This relative performance was a key component of momentum, as it implied existence and ability to implement the strategy irrespective of up or down markets.
The first academic paper demonstrating the high returns associated with the momentum strategy was a 1993 publication by Narasimhan Jegadeesh and Sheridan Titman. Among the most important extensions of this work were Clifford Asness’s 1994 paper showing the robust profitability of momentum investing strategies, and a paper by Mark Grinblatt and Tobias Moskowitz in 1999 demonstrating the role that industry affiliation played in momentum’s performance. 1 Asness was a founding partner at AQR, and Moskowitz, a professor at the University of Chicago, served as a consultant at AQR. Since the original academic work, hundreds of papers had been published on momentum. While explanations for the phenomenon differed, there was widespread agreement about its existence and pervasiveness. In particular, the momentum phenomenon had also been found to exist in international equity markets and across various asset classes.
1 See Jegadeesh, Narasimhan, and Sheridan Titman, “Returns to buying winners and
9 -2 1 1 -0 2 5
REV: MARCH 29, 2012
DANIEL BERGSTRESSER
LAUREN COHEN
RANDOLPH COHEN
CHRISTOPHER MALLOY
AQR's Momentum Funds (A)
In early 2009, after significant research and reflection, Cliff Asness, founder and principal at AQR, was considering the launch of three new retail mutual funds that would offer investors exposure to
‘Momentum,’ a new investment style. While momentum strategies were commonplace among hedge funds, the new AQR funds would become the first retail funds to focus on this strategy.
The Momentum Strategy
AQR defined stock momentum as ‘the phenomenon that stocks which have performed well in the past relative to other stocks (winners) continued to perform well in the future, and stocks that have performed relatively poorly (losers) continue to perform poorly.’ This relative performance was a key component of momentum, as it implied existence and ability to implement the strategy irrespective of up or down markets.
The first academic paper demonstrating the high returns associated with the momentum strategy was a 1993 publication by Narasimhan Jegadeesh and Sheridan Titman. Among the most important extensions of this work were Clifford Asness’s 1994 paper showing the robust profitability of momentum investing strategies, and a paper by Mark Grinblatt and Tobias Moskowitz in 1999 demonstrating the role that industry affiliation played in momentum’s performance. 1 Asness was a founding partner at AQR, and Moskowitz, a professor at the University of Chicago, served as a consultant at AQR. Since the original academic work, hundreds of papers had been published on momentum. While explanations for the phenomenon differed, there was widespread agreement about its existence and pervasiveness. In particular, the momentum phenomenon had also been found to exist in international equity markets and across various asset classes.
1 See Jegadeesh, Narasimhan, and Sheridan Titman, “Returns to buying winners and