Practical analysis for investment professionals
15 May 2014

Weekend Reads for Investors: Momentum Matters

Posted In: Weekend Reads

The momentum effect in investing refers to the tendency of stocks and other financial assets to show persistence in their relative performance. Narasimhan Jegadeesh and Sheridan Titman documented the anomaly in “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” widely considered to be the seminal study on momentum investing. Despite convincing data, momentum hasn’t been widely embraced as an investment strategy. Research Affiliates, for one, has likened it to a “game of hot potato,” and considers it nothing more than a short-term trading strategy.

In contrast, AQR Capital Management has had considerable success combining momentum and value factors into its quantitative investment process, citing the negative correlation between the two strategies. Cliff Asness, Andrea Frazzini, and Ronen Israel, colleagues at AQR, along with Tobias J. Moskowitz of the University of Chicago Booth School of Business, offer a spirited defense of momentum investing in the recently published “Fact, Fiction, and Momentum Investing.” Asness et al set out to dispel what they see as 10 common myths about momentum, including that it lacks a unifying theory, is inappropriate for taxable investors, and only works on the short side. It’s a worthwhile and compelling read. Below are some other worthwhile stories and videos from recent weeks.

Strategic Thinking

Market Trends

Getting Technical

Heavyweight Battles

High Profiles

Twitter

Yahoo and Alibaba

Philanthropy

In Memoriam


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/JLGutierrez

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

2 thoughts on “Weekend Reads for Investors: Momentum Matters”

  1. Savio Cardozo says:

    Hello David
    I enjoyed your article which I just read – I must have missed it earlier.
    I first got interested in the subject of momentum after reading the excellent Research Foundation publication called Trends in Quantitative Finance in 2006.
    My take on momentum investing is that the more people that believe it does not work helps folks like me who believe in it.
    Thanks again
    Savio

  2. Dave Larrabee says:

    Savio,

    I’m glad you enjoyed the article. Thanks for visiting our blog.

    -Dave

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