Abstract
Factor momentum returns do not stem from momentum in factor returns. To study the source of returns, this paper decomposes the factor momentum portfolio into a factor timing portfolio and a static portfolio, where the former dynamically collects the return due to serial correlations of factor returns and the latter passively collects factor premiums. Evidence from 210 stock return factors reveals that the static portfolio robustly accounts for a dominant fraction of the factor momentum return and outperforms in risk-adjusted returns, whereas factor return predictability is empirically too weak to produce timing benefits. The static portfolio survives the post-publication decline of factor performance but the factor momentum portfolio does not.
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