Carhart Momentum Loading

Carhart momentum loading quantifies how much of a strategy's returns or signal strength derives from exploiting the tendency of assets with strong recent performance to continue outperforming, net of market, size, and value effects. In quant insider-trading platforms, momentum loading is critical for disentangling genuine alpha from factor-driven returns and for understanding whether elevated conviction scores reflect genuine information advantage or merely riding sector or market-wide momentum waves. High momentum loading indicates reliance on trend-following dynamics, which may persist during normal markets but can reverse sharply during regime shifts, crashes, or crowding events.

Measuring Carhart momentum loading involves regressing signal returns or portfolio returns against the momentum factor (HML Mom, high prior 12-month minus low prior 12-month returns), controlling for the three classical Fama-French factors (market excess return, size SMB, and value HML). In insider-trading analysis, elevated momentum loading can signal that apparent insider-driven outperformance is partially attributable to riding broad momentum trends rather than exploiting material nonpublic information. This is especially relevant when screening for true MNPI-informed trades versus trades coincidentally aligned with momentum regimes.