Shades of Momentum: Alternative Momentum Metrics and their Dissipation in Indian Equities

Abstract

This study explores the performance and dissipation of momentum strategies in the Indian equity market, focusing on four different momentum metrics: academic momentum, volatility-adjusted momentum, idiosyncratic momentum, and information discreteness momentum. Using decile and long-short factor portfolios, we compare the effectiveness of each momentum metric in generating excess returns over the risk-free rate. Our analysis spans from December 2008 to September 2024 and incorporates both equal-weighted and market-weighted strategies. The results indicate that all four metrics capture momentum effects, but volatility-adjusted and information discreteness momentum deliver higher risk-adjusted returns. We further examine how the momentum effect dissipates over time by increasing the holding period from 3 to 12 months. Our findings show that while shorter holding periods generate substantial momentum returns, these effects weaken significantly as the holding period lengthens, suggesting that momentum strategies are most effective over shorter durations.

Keywords: Momentum, Momentum Investing, Momentum Dissipation, Equity Returns

JEL Classification: G00, G11, G12