Islamic State as Hypermodern, Momentum Traders

Professor Tyler Cowen (Average Is Over; The Great Stagnation) has posted at his Marginal Revolution blog an email I wrote him about the parallels between Islamic State and the momentum investment strategy in response to an earlier post.

 

The comments got trolled with posters misunderstanding how momentum strategies actually work; describing strategic culture as a folk theory; and critiquing my graduate school experience via Leo Strauss and the Sokal affair.

 

There are several parallels between Islamic State and momentum investing:

 

1. Islamic State has grown rapidly in terms of its mujahideen membership; control of parts of northern Iraq and Syria; and its power projection.

2. Islamic State has outperformed its peer jihadist groups in terms of the impact of its terrorist campaign.

3. Islamic State has persisted over time despite efforts by Iraq, Turkey, the United States, Russia, the United Kingdom, Australia, and France to end it.

4. Islamic State has exploited weaknesses in its enemies through a sophisticated psychological warfare strategy.

5. The Obama Administration may have initially underreacted to Islamic State as a national security threat.

 

Rapid growth; persistence over time; outperformance of peers; and arbitrage of behavioural biases is observable in momentum strategies for equity stocks.

 

I thank Tyler for posting my comment and also Gary Antonacci (Dual Momentum Investing) for his insight that momentum strategies rely in part on behavioural biases that are ubiquitous.