When Are Momentum Models Profitable?
- By Sam van de Schootbrugge
- 5 min read
Summary
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- A new paper in the highly rated Review of Financial Studies journal explains how momentum profits are strongly linked to the performance of winners and losers during the formation period.
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- Specifically, the smaller the difference between the cumulative returns of winners and losers during the formation period, the larger the cross-sectional momentum profits will be.
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- Market reactions to news drive these momentum profits. In periods when markets have underreacted, due to conservatism or inattention, momentum profits should be larger.
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