Momentum investing if handled with discipline based on statistically proven methodologies can be hugely rewarding. A recent research paper, Fact, Fiction and Momentum Investing by Moskowitz, Asness and Israel (May 2014), shows that managers can improve the efficiency of their portfolios by incorporating momentum strategies.
An ever growing amount of academic research proposes that relative returns can determine whether future price performance will be above or below the market’s return, expressly over the next six to 12 months. For the past 20 years academic studies have repeatedly shown that, on average, shares that have performed well in the recent past continue to do so for some time. Longer-term studies have confirmed a momentum effect which has existed for well over a century. The research found Momentum in over 40 global markets across a dozen asset classes. The findings point towards Momentum existing inherently in all markets.
Many fund managers have turned a blind eye to Momentum. It could stand to reason that without a systematic approach and the proper tools, portfolio managers have had no way to test Momentum strategies and measure the results. Trendrating has solved this dilemma by developing a robust and objective methodology to measure medium to long-term price trends for any instrument, portfolio or index.
Brian Hurst, Yao Hua Ooi, Lasse H. Pedersen, Ph.D.
We study the performance of trend-following investing across global markets since 1903, extending the existing evidence by more than 80 years.
G. William Schwert
Anomalies are empirical results that seem to be inconsistent with maintained theories of asset-pricing behaviour.
Eugene F. Fama, Kenneth R. French
The anomalous returns associated with net stock issues, accruals, and momentum are pervasive; they show up in all size groups (micro, small, and big) in cross-section regressions, and they are also strong in sorts, at least in the extremes.
Clifford S. Asness, Andrea Frazzini, Ronen Israel, Tobias J. Moskowitz
It’s been over 20 years since the academic discovery of momentum investing (Jegadeesh and Titman (1993), Asness (1994), yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool.
In this paper we construct and investigate the properties and robustness of a set of momentum factors. We also construct illustrative indices, based on a preferred momentum definition and show that the resulting indices exhibit a substantial exposure to momentum and relatively low levels of turnover.
K. Geert Rouwenhorst
International equity markets exhibit medium-term return continuation. Between 1980 and 1995 an internationally diversified portfolio of past medium-term Winners outperforms a portfolio of medium-term Losers after correcting for risk by more than one percent per month.
There is substantial evidence that indicates that stocks that perform the best (worst) over a three to 12 month period tend to continue to perform well (poorly) over the subsequent three to 12 months.
Benjamin Chabot, Eric Ghysels, Ravi Jagannathan
We combine self-collected historical data from 1867 to 1907 with CRSP data from 1926 to 2012, to examine the risk and return over the past 140 years of one of the most popular mechanical trading strategies – momentum.
Benjamin Chabot, Eric Ghysels, Ravi Jagannathan
We find that price momentum in stocks was a pervasive phenomenon during the Victorian age (1866-1907) as well. Momentum strategy profits have little systematic risk even at business cycle frequencies; disappear periodically only to reappear later; exhibit long run reversal; and are higher following up markets, suggesting limited availability of arbitrage capital relative to opportunities during those times.
This paper evaluates various explanations for the profitability of momentum strategies documented in Jegadeesh and Titman (1993). The evidence indicates that momentum profits have continued in the 1990’s suggesting that the original results were not a product of data snooping bias.
Narasimhan Jegadeesh, Sheridan Titman
This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods.
Clifford S. Asness, Tobias J. Moskowitz, Lasse H. Pedersen
Value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities. We study jointly the global returns to value and momentum and explore their common factor structure.
Tobias J.Moskowitz, Yao Hua Ooi, Lasse Heje Pedersen
Time series momentum exhibits strong and consistent performance across many diverse asset classes, has small loadings on standard risk factors,and performs well in extreme periods.