Industry Momentum - Riding Industry Bubbles

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

P98.7

outranked ~197 of 200 baskets

Gate 3

Cost-aware net

RF +8.06

positive, not certified

Failedfailed refutation

Worst 12-month leg (RF)-0.59

−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.

The idea, following Moskowitz & Grinblatt (1999), is that momentum shows up at the industry level: recently strong industries tend to keep outperforming for a period. This implementation buys the winning industries long-only.

What we found

The result did not survive scrutiny, and we reject it. Because the implementation is long-only rather than market-neutral, it carries full equity-market beta instead of isolating an industry-momentum factor, so most of the apparent performance is simply exposure to a rising market. On top of that, a partial-2026 stub of just 7 trades contributes roughly 23% of the total P&L, so the headline is inflated by a small-sample jackpot. A high RF and placebo percentile here reflect beta plus a lucky tail, not a clean, diversifying factor-leg, so this is not something we treat as a validated 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: Moskowitz & Grinblatt (1999), "Do Industries Explain Momentum?", J. Finance (industry-momentum; QuantPedia lists Greenwood & Nagel 2009 which is a different, non-tradeable bubble-riding study)
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.