Short-Lag Industry-Factor Momentum: Time-Series Sign of Each Sector-minus-SPY Spread's Last-Month Return, SPY-Hedged Long-Short Book (9 SPDR sectors + SPY, USEQ 1-DAY, 21-session rebalance)

Source: Falck et al., 'Is Factor Momentum More than Stock Momentum?' (arXiv 2009.04824, 2020), abstract. The abstract's testable claim is that factor momentum exists both directionally (time-series) and cross-sectionally. It also claims that after controlling for stock momentum, only implementations that include the LAST MONTH of factor returns keep significant Sharpe ratios. Stock-level returns mean-revert at short lags, but factor returns continue at all lags. Our venues hold no anomaly-factor ETFs; the catalog was checked and MTUM/QUAL/USMV/VLUE/IWD/IWF/RSP are all absent. We therefore use the factor class we can build honestly from data on hand: industry factors, each defined as a sector ETF's return minus SPY's. The nine original Select Sector SPDRs (XLK, XLF, XLE, XLV, XLP, XLU, XLI, XLY, XLB) have USEQ 1-DAY bars from Dec-1998, about 27 years. XLRE and XLC are excluded because their history is too short. On every 21st session (counted in bars, not calendar dates), compute each spread's trailing 21-session return, f_i = ln(P_i,t/P_i,t-21) - ln(SPY_t/SPY_t-21). Time-series mode: hold sector i at weight sign(f_i)/9 x gross_fraction, and hold SPY at minus the sum of the sector weights. The SPY leg therefore nets the market out, and the book is a pure bet on industry-factor continuation. Hold for 21 sessions, then recompute. The abstract also tests a cross-sectional variant: long the top 3 and short the bottom 3 spreads by f_i, equal weight, with the SPY leg netting any residual. It is exposed as one categorical switch because both implementations come from the source; there is no other added degree of freedom. The universe is fixed at 10 names, within the ~10-name cap from lesson L173, so per-rebalance compute is trivial (10 log returns). How this differs from the pipeline's LargeSmallCapMonthlyMomentumSpread: that bet is a single size spread. This book is a nine-factor industry book, and the paper's specific claim is the 1-month lag, where stock-level reversal and factor-level continuation pull in opposite directions. What the full paper must confirm: (1) the 1-month formation window and monthly holding period, assumed here from 'last month of returns'; (2) that industry factors behave like their 72 anomaly factors (Moskowitz-Grinblatt 1999 and Arnott et al. 2021 report the same short-lag industry and factor continuation); (3) whether they skip any days between formation and holding (we skip none). Sizing: gross_fraction is FIXED at 0.9 of equity per side, with no leverage tuning and no buying-power parameter. A recent SPY strategy died because its Sharpe changed with position size; this design does not use the margin buffer at all. Net market beta is about 0 by construction. Stop rule: a catastrophic book-level stop flattens everything if the book is down 8% from the last rebalance's equity, and the book re-forms at the next scheduled rebalance.