It has been over 30 years since the first major work on momentum was presented in a leading finance journal (Jegadeesh and Titman). Prior to that study, the conventional wisdom of efficient markets believed there was no trend or momentum effect. The world has changed and over the last three decades we have extensive research that has improve the initial research and strong explanations for why momentum exists. There are both behavioral and risk-based explanation for momentum and they have stood the test of time. Markets will under and overreact to new and will have different time dimensions. There is also a systematic risk component that can provide a reasonable explanation for momentum.
Momentum does not just exist in equity markets but is present around the global, in commodities, currencies, and fixed income. There is also commonality in stock momentum through industries and factors. Momentum is one of the strongest, most pervasive, and well researched factors in the marketplace.
Of course, the strong long-term research results do not mean that momentum will always work as has been tested, momentum works strongest when there is a strong overall market sentiment. When more investors expect momentum is a given, it is more likely to have a poor performance year. There is a range of performance.
All if this work is nicely presented in a review, see "Momentum: what do we know 30 years after Jegadeesh and Titman's seminal paper?"
No comments:
Post a Comment