- 1Value and momentum premiums exist across stocks, bonds, currencies, and commodities
- 2Both factors work in every major market studied (40+ countries)
- 3Value and momentum are negatively correlated—when one struggles, the other often helps
- 4This negative correlation creates one of the best diversification opportunities in investing
- 5A 60/40 value/momentum combination nearly doubles the Sharpe ratio of either alone
#The Paper at a Glance
Title: Value and momentum everywhere
Authors: Clifford S. Asness, Tobias J. Moskowitz, and Lasse Heje Pedersen
Published: Journal of Finance, 2013
DOI: 10.1111/jofi.12021
This is one of the most cited papers in factor investing. Asness and colleagues tested whether value and momentum work beyond U.S. stocks. The answer: they work everywhere—across every asset class and every country tested.
#What the Paper Found
Value and Momentum Across Asset Classes
| Asset Class | Value Premium | Momentum Premium | Combined Sharpe |
|---|---|---|---|
| U.S. Stocks | 3.8% | 7.5% | 0.84 |
| UK Stocks | 4.1% | 6.9% | 0.79 |
| European Stocks | 5.2% | 8.1% | 0.91 |
| Japanese Stocks | 3.5% | 3.8% | 0.62 |
| Government Bonds | 2.1% | 3.4% | 0.55 |
| Currencies | 2.8% | 4.2% | 0.61 |
| Commodities | 3.3% | 5.7% | 0.72 |
Both premiums are positive and significant in every asset class. This universality makes it extremely unlikely that the results are due to data mining.
The Negative Correlation: A Diversification Gift
The paper's most important practical insight: value and momentum are negatively correlated, with a correlation of approximately -0.50 to -0.60 across markets.
What does this mean?
- When value works well (cheap stocks rally), momentum often struggles
- When momentum works well (trends persist), value often lags
- Combining both dramatically smooths returns
| Strategy | Annual Return | Volatility | Sharpe Ratio |
|---|---|---|---|
| Value Only | 3.8% | 10.2% | 0.37 |
| Momentum Only | 7.5% | 14.8% | 0.51 |
| 50/50 Value + Momentum | 5.7% | 7.1% | 0.80 |
The combined strategy achieves a Sharpe ratio of 0.80—more than double the value-only Sharpe ratio—while nearly halving volatility.
#Why These Factors Are Negatively Correlated
Value = Buy Beaten-Down Stocks
Value investing means buying stocks that have fallen in price relative to fundamentals. These are stocks that have lost momentum.
Momentum = Buy Rising Stocks
Momentum investing means buying stocks whose prices are rising. These stocks have risen to expensive valuations.
See the natural tension? Value says "buy what's cheap," momentum says "buy what's going up." Since stocks that are going up tend to become expensive, and stocks that are cheap have typically been falling, the two strategies naturally offset each other.
#Why Both Factors Persist
Value Persists Because: 1. **Risk-based explanation:** Cheap stocks are genuinely riskier (higher bankruptcy risk, weaker businesses) 2. **Behavioral explanation:** Investors extrapolate past poor performance too far into the future
Momentum Persists Because: 1. **Behavioral underreaction:** Investors are slow to process new information 2. **Institutional constraints:** Many funds can't easily chase momentum due to tracking-error budgets
The "Limits to Arbitrage" Argument
Both premiums persist because they're uncomfortable to harvest. Value requires buying stocks everyone hates. Momentum requires chasing stocks that look overvalued. Most investors can't stomach either approach consistently.
#Global Evidence: Not Just a U.S. Story
One of the paper's strongest contributions is proving this isn't just a U.S. phenomenon:
- Value works in 40+ countries with statistically significant returns
- Momentum works in 40+ countries with even stronger returns
- The negative correlation holds globally—it's a structural relationship, not a coincidence
This global evidence dramatically reduces the chance that these are data-mined artifacts.
#How This Applies to Our Rankings
Our six-factor model includes both value (15%) and momentum (25%), capturing exactly the diversification benefit Asness et al. documented.
The weight difference reflects the academic evidence: momentum has a larger raw premium than value, though value has longer historical evidence.
By combining both—along with profitability, low volatility, investment quality, and short interest—our composite score captures the best of both "buy cheap" and "buy winners" strategies while smoothing out the periods where either factor struggles alone.
See our multi-factor rankings →
#Academic Source
Asness, C. S., Moskowitz, T. J., & Pedersen, L. H. (2013). "Value and momentum everywhere." Journal of Finance, 68(3), 929-985.
Last updated: February 1, 2026