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Option Factor Momentum

Published online by Cambridge University Press:  10 April 2025

Niclas Käfer Open the ORCID record for Niclas Käfer [Opens in a new window] ,
Mathis Mörke Open the ORCID record for Mathis Mörke [Opens in a new window]  and
Tobias Wiest Open the ORCID record for Tobias Wiest [Opens in a new window]
Niclas Käfer*
Affiliation:
https://ror.org/0561a3s31 University of St. Gallen School of Finance
Mathis Mörke*
Affiliation:
https://ror.org/0561a3s31 University of St. Gallen School of Finance ESCP Business School
Tobias Wiest*
Affiliation:
https://ror.org/0561a3s31 University of St. Gallen School of Finance
*
niclasrobin.kaefer@unisg.ch (corresponding author)
mmoerke@escp.eu (corresponding author)
tobias.wiest@unisg.ch (corresponding author)
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Abstract

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We document significant time-series and cross-sectional momentum in 28 equity option factors. Factor momentum is distinct from a static factor portfolio, and prominent option factor models cannot fully explain its returns. Despite high autocorrelation, factor momentum profits are mainly driven by high and persistently different mean factor returns in the case of longer formation periods. Option factor momentum fully subsumes option momentum, but not vice versa. Our findings are robust over time, across various market states, and for alternative momentum strategy constructions.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 29
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to an anonymous referee, Manuel Ammann, Hendrik Bessembinder (the editor), Philipp Decke (discussant), Pasquale Della Corte, Bowen Du (discussant), Can Gao, Jens Jackwerth, Julian Kölbel, Manuel Leininger (discussant), Martin Nerlinger, Lasse Pedersen, Killian Plusanski (discussant), Ryan Riordan, Florian Weigert, Bo Yuan (discussant), and seminar participants at the University of Konstanz, the University of Liechtenstein, the University of St. Gallen, the 2023 Elsevier Finance Conference at FGV EBAPE in Rio de Janeiro, the 2023 Australasian Finance and Banking Conference, the 2024 International Conference of the French Finance Association, the 2024 Frontiers of Factor Investing Conference, the 2024 Structured Retail Products and Derivatives Conference, the 2024 FMA Europe Conference, and the 2024 FMA Asia/Pacific Conference for their constructive and insightful comments.

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