Why Momentum Is Struggling

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Mark Carhart, in his 1997 study “On Persistence in Mutual Fund Performance,” was the first to use momentum, together with the three Fama-French factors (market beta, size and value), to explain mutual fund returns. Initial research on momentum, however, was published by Narasimhan Jegadeesh and Sheridan Titman, authors of the 1993 study “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.”

The research on momentum has shown that its premium has been persistent across long periods of time, pervasive across geography and asset classes (stocks, bonds, commodities and currencies), robust to various definitions (formation periods) and implementable (as it survives transaction costs).

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