Feb 15, 2017

Momentum Stocks: What Time Frame Should You Use?

I just listened to Jack Vogel's (author of the Quantitative Momentum book) interview on the Better System Trader podcast and I want to share with you some of the material that I found to be the most interesting:
  • He defines momentum investing as a strategy that involves investing in stocks that have had the best performance over the last 12 months;
  • Value investing tends to work well at one time and momentum tends to work well at another time;
  • Short-term momentum defined by just looking at the performance over the last week or month has mean reverting characteristics - the strongest performers tend to perform worse than average;
  • Intermediate-term momentum, anything between 3 months and 15 months is the time frame where momentum seems to work the best - in this time frame the top performing stocks continue to outperform;
  • Long-term momentum, defined as a look back period of 5 years is also mean reverting;
My take on the study is that if you are trading momentum, you should look for the best performing stocks over the last 3 to 15 months. This is the sweet spot for momentum to perform well.

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