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Academic audit

Failedequity XS momentum/vol

Momentum and Reversal Combined with Volatility Effect in Stocks

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
P99.5
outranked ~199 of 200 baskets
Gate 3
Cost-aware net
RF +0.94
positive, not certified
Failedfailed refutation
Worst 12-month leg (RF)-0.86
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
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 is a cross-sectional equity factor that ranks stocks by a combination of momentum, short-term reversal, and idiosyncratic volatility (the idiosyncratic-vol lineage of Fu, 2009) and holds a long/short spread across the ranking.

What we found

The ranking carries real, statistically significant rank-skill: the effect survives a survivorship-free placebo test at the 99.5th percentile, so it is not simply an artifact of picking the wrong names or of a lucky draw. But the risk-adjusted return is weak, the worst calendar year is deeply negative, and the cumulative net result sits far below simple passive exposure. In other words, the signal is statistically real yet economically uninvestable, which is why it is rejected. This is not a tradeable strategy or a diversifying building block; it is a documented factor that does not clear an honest cost- and risk-aware bar.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • 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: Combined momentum-reversal-volatility (QuantPedia; idiosyncratic-vol lineage of Fu 2009)
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.