Title: Unmasking the Hidden Influence of Implicit Momentum Bias in Finance

A Puzzling Question Echoes Across the Financial Blogosphere

Where did all the finance bloggers go? This question, posed by Tadas, sparks a discussion about the declining presence of financial bloggers. Yet, an underlying factor remains unexplored: implicit momentum bias.

The Power of Sustained Trends and Unconscious Preferences

By "momentum", we mean a sustained trend, whether conceptual or technical. By "implicit bias", we refer to a cognitive preference that often goes unstated and is partially or fully unconscious. This bias affects both readers and authors in various ways.

The Retail Trading Pursuit of Momentum

The majority of retail investors and traders are following discretionary strategies that boil down to technical momentum, either explicitly or implicitly. From ad hoc moving average strategies to cocktail party stock tips, this bias is prevalent in retail trading.

The Asset Management Embrace of Momentum Strategies

Many active asset managers are pursuing strategies that essentially boil down to technical momentum, whether through stock picking or aligning with historically strong long-term risk-adjusted returns of momentum. This bias is evident in the top papers from SSRN, where two out of ten are momentum papers.

Quant Funds and the Mask of Sophistication

Many low- and medium-frequency funds run strategies that are essentially momentum dressed in sophisticated clothing, often tracking one or more risk premia rather than raw prices. This bias is exemplified by Ilmanen's Expected Returns, who now works at AQR.

Mainstream Media's Ratings Race and Momentum-Driven Trends

Mainstream financial media ratings are driven by viewers' perception of "something is happening", which almost always occurs in strongly trending markets—bubbles or crashes. In contrast, range-bound markets are often deemed "boring" or "frustrating".

The Blogosphere and the Pressure for Unique Perspectives

Building readership depends on establishing a distinctive perspective or "voice", enabling a blog to stand out amidst all the noise. This demands content to be formulaic in some predictable sense, leading many blogs to exhibit this bias.

The Search for Alpha and Momentum's Influence

Much of the search for alpha is tested via historical backtests that span many years, including both trending and range-bound regimes. Invariably, majority of both alpha and beta strategies perform best in momentum-driven trending markets.

Unveiling the Implicit Momentum Bias: What's Next?

Understanding implicit momentum bias can help investors make more informed decisions by recognizing and mitigating its influence. Asset classes like IEF, C, TIP, GS, QUAL may provide opportunities for those who can navigate around this bias.