Momentum

Momentum is one of the few theories that technicians and academics agree on

• Momentum strategies tend to work in the short term, not the long term
• Have worked for centuries
• Works because of human behavior (human behavior does not change)
• Tho types of momentum
• Time-Series / Absolute (Trend Following)
• Relative Strength / Cross-Sectional
• Papers to read that prove this:
• A Century of Evidence on Trend-Following Investing (AQR)
• Two Centuries of Multi-Asset Momentum (Geczy & Samonov)

Eugene Fama on Momentum

• "The data show it does well just about everywhere.  The evidence that it produces superior returns over long periods, if you can do it cheaply enough, is robust"

Famous Momentum Traders:

• Charles Dow (1851 - 1902)
• Jesse LIvermore (1877 - 1940)
• Richard Wyckoff (1873 - 1934)
• George Chestnut (1930s)
• Richard Donchian (40s and 50s)
• Nicholas Darvas (1920 - 1977)
• Jack Dreyfus (50s and 60s)

Areas Where Momentum Strategies have been studied and proved to work:

• Country focused market indexes
• Mutual Fund Portfolios
• Foreign stocks
• Foreign currencies
• Industry groups
• Emerging Market stocks
• Commodity Futures
• Commodity Spot PRices
• Bonds