Do Simple Strategies Still Work for Retail Investors? A Modern Evaluation of Momentum, Mean Reversion, and Kelly Allocation: Evidence from the U.S. Equity Market Open Access

Abstract

This thesis investigates the comparative performance of three foundational systematic equity

strategies—momentum, mean reversion, and Kelly allocation—within the contemporary U.S. large-cap

market. The goal is to provide investing insights for retail investors with a limited technical background.

Using our self-constructed monthly S&P 500 data from 2019–2025, we implement a two-step design.

We first replicate foundational studies to validate their reliability under recent conditions. Then, unlike

prior studies that evaluate these approaches in isolation, we place all three strategies under a

harmonized comparison framework. Specifically, we place them under unified investment horizons, with

universal rebalancing cadences, and consistent portfolio constraints. Through this process, we also

extended the single-asset Kelly framework into a multi-asset setting. Additionally, by implementing the

harmonized framework, we were able to reduce the model complexity of the original strategies, which

enhances interpretability and usability for retail investors.

Findings show that both momentum and fractional Kelly allocation deliver robust performance

across recent market conditions, whereas short-horizon mean reversion exhibits persistent

underperformance. These results align with the structural features of the post-2020 environment,

characterized by policy-driven liquidity cycles, faster information absorption, and trend-reinforcing

sector dominance. Together, these features suppress short-lived price reversals and favor disciplined,

rule-based allocation frameworks. Importantly, reducing model complexity does not materially weaken

performance under the recent market, indicating that simplified implementations are suitable for non-

professional investors seeking systematic exposure without sophisticated modeling infrastructure.

Overall, the study provides new insights into how modern market dynamics influence the

relative effectiveness of classical strategies. Moreover, it offers practical, accessible guidance and

optimal performance criteria for retail investors deciding between momentum, Kelly, and mean-

reversion frameworks. The results underscore the value of cadence discipline, capital efficiency, and

structural awareness, while emphasizing that all findings remain time-period dependent in a rapidly

evolving market environment.

Table of Contents

1 Introduction

1.1 Motivation and Research Objective

1.2 Key Contributions of This Study

2 Literature Review

2.1 Momentum Strategies

2.2 Mean Reversion and Contrarian Strategies

2.3 Kelly Criterion and Fractional Allocation

2.4 Synthesis and Research Contribution

3 Data and Variables

3.1 Data Source and Collection

3.2 Data Cleaning and Pre-Processing

4 Methods

4.1 Overview and Two-Step Design

4.2 Assumptions

4.3 Common Notation and Conventions

4.4 Benchmark Portfolio

4.5 Momentum

4.6 Mean Reversion (Contrarian)

4.7 Kelly Criterion

5 Results

5.1 Part 1: Results

5.1.1 Momentum Results

5.1.2 Mean Reversion Results

5.1.3 Kelly Allocation Results

5.2 Part 2: Comparison Within Same Horizon

6 Discussion

6.1 Interpretation and Significance of Findings

6.1.1 Synthesizing Step 1 and Step 2

6.2 Limitations

6.2.1 Data Limitations

6.2.2 Structural and Methodological Limitations

6.3 Future Research Directions

6.3.1 Data Enhancements

6.3.2 Methodological Extensions

7 Conclusion

Appendix

A.1 S&P 500 Dataset Cleaning Summary

A.2 Step-1 Table for Top-K Momentum Results by Rebalancing Cadence for both Variants

A.3 Step-2 Table for Top-K Momentum Results by Rebalancing Cadence for both Variants

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, Finance
Keyword	Stock Market US Equity Market S&P 500 Momentum Kelly Criterion Mean Reversion Market Environment Post Covid Simple Trading Strategy Insights for Investors Finance
Committee Chair / Thesis Advisor	Musa Ayar, Emory University
Committee Members	Jasminka Ninkovic, Emory University Ruoxuan Xiong, Emory University

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