Momentum investing stays a cornerstone of systematic fairness methods, and our current analysis exhibits it’s one deserving of allocators’ full consideration. In our newest evaluate (forthcoming, 2026), we offer a complete replace on its empirical foundations and sensible evolution.
Drawing on greater than 150 years of information and 1000’s of portfolio specs, we reaffirm momentum’s resilience whereas highlighting its transformation right into a multidimensional phenomenon. The momentum premium shouldn’t be a statistical fluke or a product of information mining; somewhat, it’s a constant and sizable return unfold that has endured throughout eras, geographies, and portfolio development decisions.
For institutional buyers, nonetheless, our findings are each a validation and a problem: momentum is strong, however its implementation and danger profile have modified in ways in which demand cautious consideration.
150 Years of Persistence….and Counting
Momentum’s long-term persistence is maybe its most defining characteristic and the first motive it stays related for buyers. Exhibit 1 illustrates this long-term efficiency, displaying the cumulative returns of a easy long-short momentum technique from 1866 to 2024.
Over this 150-year pattern, a easy lengthy–brief technique that buys previous winners and sells previous losers turns an preliminary $1 into greater than $10,000, reflecting annualized returns of roughly 8–9%. These returns aren’t solely sizable, but additionally extremely statistically vital, with t-statistics far above the thresholds sometimes used to find out whether or not a result’s actual or because of probability.
Importantly, this discovering shouldn’t be delicate to how the portfolios are constructed. Whether or not we use value-weighted or equal-weighted returns, alter the definition of momentum, or alter the time interval examined, the premium persists. Such robustness throughout specs and pattern home windows strengthens the conclusion that momentum shouldn’t be an artifact of a specific methodology.
For institutional buyers, the message is simple: momentum has endured throughout eras, market situations, and portfolio designs, indicating that it displays a structural characteristic of monetary markets somewhat than a fleeting anomaly.
Exhibit 1: Lengthy-Time period Efficiency of Momentum
This exhibit exhibits 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 way 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 considered as a single, uniform technique. Its efficiency relies upon closely on how the portfolio is constructed. Design decisions akin to whether or not returns are value-weighted or equal-weighted, the place breakpoints are set, trade neutralization, and microcap inventory inclusion can all have an effect on each the extent of returns and the quantity of danger taken.
To quantify this sensitivity, we create greater than 4,000 variations of momentum portfolios. All of them generate constructive Sharpe ratios, indicating that the momentum premium is broadly sturdy. Nevertheless, 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 differ 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 current many years, momentum analysis has broadened nicely past easy value developments. New types of momentum seize alternative ways during which returns proceed over time. Elementary momentum, primarily based on earnings surprises, analyst revisions, or information sentiment, displays buyers’ tendency to underreact to new info. 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.
Business and community momentum seize each top-down forces (sector developments, macro cycles) and bottom-up relationships (product-market linkages, analyst consideration spillovers), whereas issue momentum displays slow-moving capital flows into kinds and protracted macro environments favoring sure traits. These different indicators are imperfectly correlated with conventional value momentum and with each other, offering significant diversification.
The multidimensional composite (EW_ALL), which equally weights value momentum and ten different indicators, delivers increased common returns, stronger t-statistics, and considerably improved drawdown traits relative to cost momentum alone.
Exhibit 2 illustrates the cumulative efficiency of this composite versus conventional value momentum since 1927, making the diversification advantages and risk-efficiency positive aspects readily obvious.
Exhibit 2: Multidimensional Momentum vs. Worth Momentum
This exhibit compares the cumulative returns of conventional value momentum and the multidimensional momentum composite (EW_ALL) since 1927. Efficiency is gross of transaction prices in USD. All underlying sign portfolios are equal-weighted. The equal-weighted composite combines value momentum with ten different momentum indicators, demonstrating superior returns and risk-adjusted efficiency relative to cost momentum alone. Chart represents a snapshot of the info which is absolutely accounted for by way of 2024. Supply: Baltussen et al. (2026). Momentum issue investing: Proof and evolution, forthcoming in Journal of Portfolio Administration.
The Blind Spot
The Achilles heel of momentum, nonetheless, stays its crash danger. Momentum methods are susceptible to sharp reversals, notably throughout market regime shifts. We doc most drawdowns as giant as –88% for conventional value momentum, accompanied by left-skewed and fat-tailed return distributions.
Nevertheless, many various momentum indicators are much less risky, and the multidimensional composite meaningfully reduces danger relative to cost momentum alone. Constructing on prior work, we implement volatility-scaling at each the portfolio and inventory ranges, dramatically lowering drawdowns and bettering Sharpe ratios. The ensuing risk-managed momentum technique (RM_MOM) delivers annualized returns of almost 18% at volatility comparable to straightforward momentum, with drawdowns lower almost in half.
Diversify the Indicators
For institutional buyers, the implications are clear. Issue development issues, and robustness checks throughout portfolio designs are crucial. Diversifying momentum indicators can ship superior risk-adjusted returns.
Managing crash danger by way of volatility scaling and multidimensional portfolios is crucial for sustainable momentum publicity. Whereas risk-based theories could clarify among the premium, behavioral biases and limits to arbitrage stay central to momentum’s persistence.
We take into account Momentum an “everlasting” characteristic of monetary markets. However its implementation should evolve. Buyers who embrace multidimensional, risk-managed momentum methods will likely be higher positioned to seize persistent alpha whereas navigating the inevitable dangers.
References
Baltussen, Dom, Van Vliet & Vidojevic (2026). Momentum issue investing: Proof and evolution, forthcoming in Journal of Portfolio Administration.
