Combining Smart Factors Momentum and Market Portfolio

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation

Gate 1

Survivorship-free

free

clean panel

Gate 2

Placebo ≥ P95

not run

Gate 3

Cost-aware net

RF n/a

Failedfailed refutation

Cleared the numeric checkpoints it reached but failed adversarial refutation — the positive figure is market beta or a single-period jackpot, not a repeatable edge.

This approach blends a cross-sectional momentum factor with a long allocation to the broad market portfolio, aiming to combine factor tilt with market exposure. Because part of the book is simply held long in the market, the design is a mix of a factor signal and passive equity ownership.

What we found

The construction includes an explicit long market-portfolio leg, so it is not market-neutral and is not a clean factor. Its return is dominated by ordinary equity-market beta rather than by any standalone skill in the momentum ranking. In our framework this fails as a diversifying factor-leg: what looks like performance is largely the market exposure it holds by design, not an independent, market-neutral building block.

How we tested it

2005–2026 test windowmodelled liquidity-aware costssurvivorship free

Tested on a survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)

Source: Combining smart factors (momentum) with the market portfolio (QuantPedia)
Read the paper ↗

← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.