Measuring Fundamental Momentum with FIR and Combining It with Price Momentum

Summary

This report summary describes fundamental implied returns, or FIR, as a measure of fundamental momentum intended to use more information than conventional measures. FIR accounts for lagged fundamental variables and their time trends, and can be constructed through multivariate regression or a forecasting portfolio approach. The cited research reports that a long-short portfolio based on FIR produced an average monthly return of 0.88%, comparable to price momentum.

The report then combines fundamental and price momentum into a dual-momentum strategy. It reports an average monthly return of 2.16%, greater than the sum of the two component returns, and says the result was not explained by existing factor models. These are findings from historical tests using overseas data, as described in the summary; the underlying study is not reproduced here. The results may not generalize to other markets or periods and do not establish future performance.

Key ideas

• FIR measures fundamental momentum using lagged fundamentals and their time trends.
• The report describes constructing FIR with multivariate regression or a forecasting portfolio method.
• The cited FIR long-short portfolio returned an average of 0.88% per month in the reported tests.
• Combining fundamental and price momentum produced a reported average monthly return of 2.16%.
• The findings rely on historical overseas data and may not generalize to other settings.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.