QUESTION 1:
Describe in details the Momentum strategy as it is defined by Academics.
What are the possible explanations for the sources of the Momentum strategy returns? Does this strategy
appear robust to you?
Would you be willing to invest in such strategy? Why or why not?
QUESTION 2:
Can AQR propose this strategy to retail investors? Why or why not?
Evaluate the part of the Momentum strategy that will actually be delivered to retail investors and if this
difference would reduce the zero correlation benefit with other popular strategies.
Finally, explain some of the implementation issues that AQR faces.
QUESTION 3:
“2009 Momentum Returns (UMD): -83.36% !”. The Momentum strategy (as defined by Academics)
delivered a catastrophic loss in 2009. AQR’s product was however up 11% that same year.
Explain what caused the catastrophic loss in 2009.
Why was AQR’s product up 11% that same year?
Why would you incorporate the Momentum strategy (either the one defined by Academics or the one
implemented by AQR) into individual investors’ portfolios?
Would you recommend CPPIB to include the Momentum strategy (either the one defined by Academics or
the one implemented by AQR) in its portfolio? Why or why not?
Sample Solution
