Momentum Investing

In their July 2005 paper entitled “Momentum Profits and Non-Normality Risks”, Ana-Maria Fuertes, Joelle Miffre and Wooi Hou Tan examine the distributions of returns for nine momentum investing strategies as they attempt to explain why the resultant portfolios outperform. These nine strategies consist of overlapping portfolios formed monthly that are long (short) the equally weighted tenth of stocks with the highest (lowest) return over the past 3, 6 or 12 months and held for the next 3, 6 or 12 months. Using monthly data for all NYSE, AMEX and NASDAQ stocks priced over $5 during February 1973 through August 2004, they find that: Keep Reading

In their May 2005 paper entitled “Asset Fire Sales (and Purchases) in Equity Markets”, Joshua Coval and Erik Stafford examine the effects on stock prices of mutual funds forced to sell (buy) because of predictable outflows (inflows) of funds based on their past performance. Does such forced selling and buying present predictable opportunities for front-running? By studying mutual fund transactions caused by capital flows from 1980 to 2003, they conclude that: Keep Reading