RT Journal Article
SR Electronic
T1 Passive Momentum Asset Allocation
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 34
OP 41
DO 10.3905/jwm.2002.320453
VO 5
IS 3
A1 Matthew King
A1 Oscar Silver
A1 Binbin Guo
YR 2002
UL https://pm-research.com/content/5/3/34.abstract
AB The article introduces Passive Momentum Asset Allocation as an innovative approach to investment policy. Passive Momentum Asset Allocation (PMAA) harnesses momentum with an inexpensive and rational method for identifying both positive and negative momentum. Combined with the inherent superiority of asset class indexing, PMAA produces portfolio returns that outperform most, if not all, generally accepted equity market benchmarks. The authors show that there is strong persistence in asset class index returns, and PMAA is a method to invest in existing asset class indexes according to size and value factors. PMAA enables investors to enhance investor returns and to lower uncompensated risk in portfolios using this methodology. Furthermore, the authors show that there are limits to the benefits of diversification. Arbitrarily adding asset classes to a portfolio lowers return and increases uncompensated risk. Finally, they compare the PMAA strategy with two major commonly used asset allocation policies, buy and hold and constant mix strategies.