The Mystery Of Momentum

Momentum is a well-established, empirical fact. Its premium is evident in more than 87 years of domestic market data, in more than 20 years of out-of-sample evidence beginning from the time of its original discovery, in statistics from 40 other countries, and in the performance of more than a dozen different asset classes.

In fact, the momentum premium has been both larger and more persistent in the U.S. since 1927 than the other three stock premiums—equity, size and value. Over the last 87 calendar years (1927-2013), the annual momentum premium was 8.4 percent. It was positive in 78 percent of the years during that period.

By comparison, the figures for the equity, size and value premiums are not quite as strong or persistent. Over the same time frame, the equity premium was 8.2 percent, and it was positive in 68 percent of those years; the size premium was 3.1 percent, and it was positive in 56 percent of those years; and the value premium was 4.9 percent, while showing a positive return in 62 percent of those years.

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