1/N – Does it have momentum?

This study compares the momentum strategy with the naive benchmark, also known as the 1/N rule, proposed by DeMiguel, Garlappi, & Uppal (2009). The strategies formed based on monthly data over the period of 2000 to 2018 retrieved from the CRSP/Compustat Merged Database. Three performance criteria are used to compare the performance of the momentum strategies with the naive rule. The average monthly excess return of each strategy, the monthly Sharpe ratio of each strategy and the certainty equivalent return of each strategy. The results from the analysis of this study show that the naive strategy did not constituently outperform the momentum strategies. Stock momentum was still present in the sample used on the subsequent momentum strategies performed relatively well compared to the naive benchmark.