More Time Series Momentum…

Absolute momentum is a key factor in my latest momentum paper. Positive absolute momentum exists when an asset shows a positive excess return over the lookback period. Others call this time-series momentum. The more common momentum approach, which appears in most research papers, is relative (or cross-sectional) momentum, where one asset is compared to its…

Momentum Back Testing

In 1937, Cowles and Jones published the first study showing that relative strength price momentum leads to abnormally high future returns. Academics have been diligent in studying momentum further since it flies in the face of the efficient market hypothesis (EMH). EMH says you cannot beat the market using publicly available information. Hundreds of subsequent tests over…

Momentum Tidbits…

A number of papers have aimed at improving relative strength momentum with equities by adding enhancements to it such as analyst coverage, credit rating, business cycle placement, proximity to 52- week highs, and price acceleration. Li-Wen Chen and Hsin-Yi Yu have an interesting new paper called “Investor Attention, Visual Price Pattern, and Momentum Investing” that identifies price…

More Momentum Research Papers

As the advantages of momentum investing become more widely known, there is naturally more research being done to explore its potential. Some of that research, such as the Moskowitz, Ooi, and Pedersen paper “Time Series Momentum,” has been excellent. We prefer to point out and discuss positive things like that, but since this is a blog about…

Maximum Drawdown

There is a new research paper out by Wes Gray and Jack Vogel that is interesting not only to momentum investors but to all investors and researchers. The paper is “Using Maximum Drawdown to Capture Tail Risk.” In it, Wes and Jack show that academic anomalies, identified by linear factor models (alpha), are often not great trading…

Whatchamacallit?

In 1967, Bob Levy came up with the term relative strength in his paper “Relative Strength as a Criterion for Investment Selection.” He soon afterward wrote a book called The Relative Strength Concept of Stock Price Forecasting. Levy showed that stocks that outperformed the market over a pre-specified time period exhibited performance that tended to persist.…