Momentum is like gravity

Momentum is the much ascribed theory that a stock whose price is rising faster than its peers will continue to rise, and a stock whose price is falling faster than its peers is set to continue to fall.  FT journalist David Stevenson describes momentum (and the evidence behind it) as “the dirty secret of modern investment research” in last Friday’s MoneyWeek publication.  He states the existence of momentum as a well-established empirical fact, citing Jagadeesh and Titman’s 1993 paper: Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.  More recent research from Cliff Asness of investment firm AQR has shown that the momentum risk-premium has been evident in the US in 212 years (!!) of financial data from 1801 to 2012.