September 8, 2016

IS MOMENTUM INVESTING DEAD? OR IS IT JUST PAINFUL?

Stock-selection momentum strategies (here is a link to more information) can have the potential to generate excess expected returns over the long run; on the other hand, these strategies sometimes generate massive amounts of investor pain when they inevitably go through long bouts of poor relative performance. It’s a kind of quid pro quo: in order to access the potential gain, you must willing to accept the potential pain. 

Among the academic anomalies, the momentum effect suffers bouts of horrific underperformance (i.e., “crashes”) that are legendary among academics and practitioners alike. The relative underperformance is even worse than those associated with deep value strategies. But relative “underperformance” is an abstract term. Just how bad can the “pain and anguish” associated with momentum actually get?

Read more at: http://blog.alphaarchitect.com/2016/09/07/is-momentum-investing-dead-or-is-it-just-painful/#gs.bH2Y2Dg

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