Momentum Investing: Does It Still Work?
The question arises in a constantly evolving financial world: Is momentum investing still a viable strategy? Our latest research paper at Morningstar delves into this query, revisiting the classic studies of Jegadeesh & Titman and Fama & French.
What's Inside?
A Journey Through Time: We trace the origins and developments of momentum investing, from its early conceptualization to its current status. Reevaluating momentum's role in today's stock market.
The Mechanics of Momentum: Going beyond mere trend analysis, we dissect the momentum factor, explore its varied interpretations, and discuss effective strategies for portfolio construction. This section of the paper is dedicated to understanding the intricate dynamics that drive momentum investing.
Why This Paper Matters:
Consistent Over-performance: In 13 out of 18 years, the momentum factor has outperformed its benchmarks on a rolling three-year basis, although its annual volatility might caution the risk-averse.
Lookback Periods Examined: The traditional 12-month lookback reigns supreme, while shorter periods may lead to higher costs and turnover.
The Power of Diversification: Emphasizing the importance of a diversified approach in momentum investing to mitigate risks associated with concentrated portfolios.
Portfolio Construction Nuances: Delving into signal-weighted strategies – small gains but at what cost?
Concluding Thoughts: Momentum investing remains a significant force in the stock market. Our paper offers insights into navigating its complexities, balancing risk and reward, and optimizing investment strategies.
Access the Full Paper For a detailed exploration and in-depth analysis, the full paper is available to read at the link below. Please note, that access is exclusive to users with Morningstar research portal credentials.