Today begins a two-part series on momentum and the myths that surround it. Momentum is the phenomenon that explains how securities, which have performed well relative to peers (winners), on average, continue to outperform, and securities, that have performed relatively poorly (losers), tend to continue to underperform. Jegadeesh and Titman are credited with the first academic paper on the subject. Their study, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” was published in the March 1993 issue of the Journal of Finance. Twenty years later we have evidence not only of momentum’s existence in stock returns, but evidence that the momentum premium has been both persistent over time and pervasive across countries, geographic regions, and asset classes (such as commodities, bonds, and currencies). In fact, Clifford S. Asness, Andrea Frazzini, Ronen Israel, and Tobias J. Moskowitz, authors of the May 2014 paper, “Fact, Fiction and Momentum Investing” note that the momentum premium “is evident in 212 years (1801 to 2012) of U.S. equity data, dating back to the Victorian age in U.K. equity data, in over 20 years of out-of-sample evidence from its original discovery, in 40 other countries, and in more than a dozen other asset classes.”
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