Case Write-Up: AQR

(Due date: Monday (11:55pm), August 20, 2018 )

[This case write-up should be done by each assigned group.]

Read the HBS case, "AQR's Momemtum Funds," which is available from Study Net.

Your write-up should be in the form of a memo to the Management Team of the company. It should be no more than four pages, not including appendices. In your memo, you should address the following questions.

1. Do you believe the Fama-French momentum (UMD/MOM) factor will have returns over the next decade that are significantly greater than zero, significantly less than zero, or approximately equal to zero? Use the historic data to do the analysis and to justify your conclusion.

2. Compare the UMD factor to other specifications for momentum. Specifically, use the Spreadsheet Supplement for the case to create:

(a) Decile spread portfolios = [101]

(b) Quintile spread portfolios = [(10+9)(1+2)]

(c) UMD spread portfolios (given in the Spreadsheet Supplement)

(d) Median spread portfolios = [(10+ +6)(1+ +5)]

Compute the average returns for each four of these momentum portfolios for every decade (1920s, 1930s, etc). Do these results affect your answer to the previous question?

3. What are the appropriate benchmarks for AQR's momentum funds? Will the net performance of the funds exceed those benchmarks? Why or why not?

4. The advantageous correlation structure in Exhibit 5 was seen as a key selling point of momentum. Is this the right way to think about AQR's momentum funds? If not,

use the data in the Spreadsheet Supplement to construct a more informative set of correlations. Does anything in AQR's story change?

5. Does momentum make an attractive product for retail mutual fund investors? Explain your reasons.

6. Should AQR launch its momentum funds. Explain your reasons.

 Show your analysis and provide adequate explanation, including any additional assumptions made. Supporting material can be included as appendices to your memo.