Trends and Cycles of Style Factors in the 20th and 21st Centuries

Using filtering techniques, spectral analysis, and Markov chain models, the author documents trends and cycles of factors that have significantly changed over the period to December 2000 compared with the period post-January 2001. The recent weaker performance of the value factor in the 21st century, including the value drawdown over 2017 to 2022, which is the worst value drawdown ever experienced, can be attributed to both a decreasing trend component and downturns in cyclical components. Momentum performance has also declined in the post-2001 period due to decreasing trends, while the trends of the quality and size factors have increased. Low-volatility portfolios still significantly reduce equity market risk in the 21st century, but the factor spends slightly longer durations in a low return regime.