Momentum profitable despite crash risk

Stock market data going back to 1876 shows that momentum remains a profitable strategy and that momentum market crashes are to some extent predictable, says research headed by the Federal Reserve Bank of Chicago.

Momentum investors have enjoyed large risk-adjusted returns over the past 140 years remain vulnerable to large losses and momentum crashes. These are most likely to occur when investments funds are easily available and when momentum investing has performed well in the recent past. However, evidence shows that money manager continue to employ momentum strategies at times of greatest market risk so long the competition for funds, and fees, remain sufficiently high.

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