This exhibit reveals the cumulative returns of a long-short momentum technique (winner-minus-loser portfolio) in US equities from 1866 to 2024. Efficiency is gross of transaction prices in USD. Each value-weighted and equal-weighted portfolios are displayed, highlighting the outstanding development and resilience of momentum over greater than 150 years. Chart represents a snapshot of the info which is absolutely accounted for by means of 2024. Supply: Baltussen, Dom, Van Vliet & Vidojevic (2026). Momentum issue investing: Proof and evolution, forthcoming in Journal of Portfolio Administration.
But momentum shouldn’t be seen as a single, uniform technique. Its efficiency relies upon closely on how the portfolio is constructed. Design selections akin to whether or not returns are value-weighted or equal-weighted, the place breakpoints are set, business neutralization, and microcap inventory inclusion can all have an effect on each the extent of returns and the quantity of threat taken.
To quantify this sensitivity, we create greater than 4,000 variations of momentum portfolios. All of them generate optimistic Sharpe ratios, indicating that the momentum premium is broadly sturdy. Nonetheless, the efficiency vary is substantial: the median Sharpe ratio is 0.61, however particular person specs span from 0.38 to 0.94. This means that reported returns can fluctuate relying on how the issue is constructed. For practitioners, it underscores the significance of rigorous specification checks and transparency in issue design, particularly when benchmarking or reporting outcomes.
In latest a long time, momentum analysis has broadened nicely past easy value traits. New types of momentum seize alternative ways through which returns proceed over time. Elementary momentum, based mostly on earnings surprises, analyst revisions, or information sentiment, displays buyers’ tendency to underreact to new data. Residual momentum focuses on firm-specific return patterns, isolating company-level information and sometimes producing smoother, higher-Sharpe outcomes. Anchor-based momentum, akin to the space to a inventory’s 52-week excessive, exploits behavioral biases like anchoring and the reluctance to promote at a loss.