Global Momentum

Definition: Momentum is based on the Newtonian notion that a body in motion tends to stay in motion.   In investing it refers to the tendency for price to move in the direction of a trend.  

Investment Case:   Momentum is classified into cross sectional (assets vs other assets) and time series (assets vs themselves).  Cross sectional momentum can help identify which assets/asset classes are performing better compared to each other while time series momentum attempts to maintain exposure in markets that are rising and disengage from markets that are falling.

Cost: The cost for momentum strategies is the possibility of patterns of return that differ from traditional indexes.  In addition, momentum carries no assurances that a particular trend may continue other than the behavioral finance theories developed by academics.    

Applied Academics:    The academic finance literature documents the efficiency and pervasiveness of momentum strategies across time periods, markets and asset classes. Momentum strategy is best employed on a quantitative, rules-based basis

 

Noah Schwartz CFP