Price momentum is one of the most robustly documented return premia in academic finance. Jegadeesh and Titman (1993) showed that buying past 6–12 month winners and selling past losers earned positive returns in the subsequent 3–12 months, across U.S. equities. The finding has since been replicated across asset classes and geographies.
Cross-sectional momentum construction
- Rank assets by their return over a lookback window of 3–12 months
- Exclude the most recent 1-month return (the skip-month convention, to avoid mean-reversion contamination from bid-ask bounce)
- Go long the top decile and short the bottom decile, rebalanced monthly
Momentum strategies have been documented in equities, fixed income, FX, and commodities (Asness, Moskowitz, and Pedersen 2013), making it one of the most pervasive systematic signals across asset classes.
Risk profile
Momentum strategies exhibit momentum crashes — severe, rapid reversals, typically following market stress periods when past losers recover sharply. This gives momentum characteristic negative skewness. Its correlation with carry and value signals is low to negative, making it valuable in diversified multi-signal frameworks.