Anatomy of a Cross-Sectional Momentum Strategy

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Momentum is the most-documented anomaly in the cross-sectional literature, and also the most casually implemented. Most retail write-ups stop at "rank by 12-1 return, buy the top decile." That version works in backtests and bleeds in production. The difference is in the details this article walks through: lookback choice, skip windows, rebalance timing, and — above all — the cost model.

The strategy under examination is deliberately boring. Universe: liquid US equities, top 1000 by dollar volume. Signal: 12-month return, skipping the most recent month. Formation: long the top decile, short the bottom, equal weight, rebalanced weekly with a 20% turnover cap. Nothing here is proprietary; the point is to show how much performance depends on execution assumptions rather than signal alpha.