Dual Momentum & Latest Insights from Gary Antonacci of Optimal Momentum
In an enlightening episode of "The Algorithmic Advantage" podcast, we welcome Gary Antonacci, a celebrated figure in the finance world renowned for developing the dual momentum investment strategy. Gary, who holds an MBA from Harvard, shares his extensive experience spanning various sectors of the financial industry, from brokerage to innovative investment model creation.
The discussion kicks off with Gary recounting his initial steps in the brokerage industry, followed by his shift to managing money during his time at Harvard, and later, his significant work in managed futures alongside trading giants like Paul Tudor Jones and Richard Dennis. He explains his journey toward the discovery of momentum investing, which laid the groundwork for his influential book and led to the creation of proprietary models now used by family offices and major investors.
Gary elaborates on the dual momentum concept, which leverages absolute and relative momentum to capitalize on performance persistence across asset classes. He underscores the strategy's behavioural foundations, such as the disposition effect, where investors are prone to prematurely sell winning stocks and cling to losing ones, thus paving the way for further price movement opportunities. Gary stresses the value of adopting a global investment perspective to avoid the limitations of home country bias and capture premium opportunities in international markets.
Throughout the podcast, Gary emphasizes the critical role of discipline and logical foundations in the development and adherence to investment models. He warns against the pitfalls of overfitting and underlines the necessity for robustness testing to ensure the consistency and durability of investment strategies. Furthermore, he discusses leveraging and portfolio construction's importance, advocating for a cautious approach even within aggressive models.
Gary offers insights into how dual momentum adapts to various market conditions, including challenges posed by volatile markets and the unusual correlation of bonds and equities. He wraps up with the assertion that momentum, deeply rooted in human behaviour, remains a powerful and enduring financial market phenomenon.
This episode is a deep dive into dual momentum investing, providing listeners with a thorough understanding of the strategy's theoretical and practical aspects. Gary's combination of academic insight and hands-on trading experience makes for an educational dialogue, reminding investors of the necessity for disciplined, well-informed strategies in navigating financial market complexities.
I thought it was interesting to hear Gary clarify, post-show, why he chose the terms he did for absolute and relative momentum, and I thought it would be well worth sharing here. Essentially, he prefers ‘relative’ to ‘cross-sectional’ and ‘absolute’ as opposed to ‘time series’ momentum.
Cross-sectional applies when you segment a single market into group rankings such as deciles based on returns over a given lookback period. Relative momentum is more inclusive. It includes this but also can be applied when you compare the performance of different assets. It makes no sense to refer to that as cross-sectional momentum.
Absolute momentum makes more sense than time-weighted momentum since all momentum looks at economic time series in the form of asset returns.
Investors are familiar already with relative and absolute returns. Referring to momentum the same way makes intuitive sense.
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Further Resources:
Gary’s book:
Over 800 years of trend following research was mentioned, sourced from this book:
Gary’s papers on SSRN:
https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1556771
Two Centuries of Momentum paper on SSRN:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607730
Get in touch with Gary:
x: https://twitter.com/GaryAntonacci
li: https://www.linkedin.com/in/garyantonacci/
w: https://www.optimalmomentum.com/