Option Factor Momentum

Niclas Käfer, Mathis Mörke, and Tobias Wiest

♦ 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 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.

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