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Answer: The cumulated profits on momentum strategies have been an order of magnitude larger than cumulated profits on either size or value
The correct answer is **D** because empirical research has shown that momentum strategies have generated significantly higher cumulative profits compared to size (SMB) and value (HML) factors. **Detailed analysis**: - **A**: False - Momentum is a positive feedback strategy that can be destabilizing as it amplifies price trends - **B**: False - Momentum effects have been documented across various asset classes including bonds, commodities, and real estate - **C**: False - While momentum and value strategies can have negative correlations, they are not inherently "anti-value" strategies; they represent different investment approaches - **D**: True - Historical evidence shows momentum strategies have delivered substantially higher returns than size or value factors over long periods Momentum investing involves buying assets that have performed well recently and selling those that have performed poorly, capitalizing on the continuation of short-term price trends.
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Which of the following statements is TRUE about the momentum factor?
A
Momentum is a negative feedback strategy which is inherently stabilizing
B
The momentum factor is observed in equities but is NOT observed in bonds, commodities and real estate
C
Momentum investing by definition is an anti-value strategy; correlations between HML and WML are strongly negative
D
The cumulated profits on momentum strategies have been an order of magnitude larger than cumulated profits on either size or value
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