IntermediateQuantitative Investing
Momentum Strategy: Ride the Trend, Exit Before It Breaks
Momentum investing is one of the most robust and extensively documented anomalies in finance. It systematically buys recent winners and sells recent losers — and it works across stocks, bonds, currencies, and commodities.
TL;DR
Momentum investing is one of the most robust and extensively documented anomalies in finance. It systematically buys recent winners and sells recent losers — and it works across stocks, bonds, currencies, and commodities.
The Core Principle
Stocks that have outperformed over the past 3-12 months tend to continue outperforming over the next 3-12 months. This persistence is called momentum. The classic implementation: rank all stocks by 12-month return (excluding last month), buy the top 20%, sell the bottom 20%.
Key Terms:
price momentumcross-sectional momentumlookback period