Momentum Factor Investing: Evidence and Evolution

Momentum is a foundational factor in equity markets. This article reviews its evolution in the literature and analyzes the momentum factor empirically across a wide variety of tests. The empirical analyses demonstrate robust empirical support for the momentum factor over domestic and global stock markets spanning up to 150 years of data and a wide variety of design choices, establishing momentum’s resilience against data mining and arbitrage concerns. Momentum has transitioned from pure price-based trends to advanced fundamental, firm-specific, and network-based trends that improve the effectiveness of the momentum factor. Finally, momentum is exposed to crash risk, but the authors find that risk-managed momentum strategies mitigate the crash risk and improve the risk efficiency of the momentum factor. Overall, the momentum factor premium is sizable, robust, persistent, and fundamentally multidimensional.