Understanding Momentum

Posted: 7 May 2005


The extensive literature on price momentum effects is a potential source of confusion for portfolio managers because conflicting explanations give rise to different implications for portfolio strategy. Analysis of the value-weighted large-capitalization universe represented by the MSCI World Index indicates that price momentum is driven largely by industry momentum, not individual-stock momentum, and that it is not a result of cross-sectional dispersion in industry mean returns or varying industry exposure to systematic risk. In a small-cap universe, stock-specific effects assume greater importance. For sample periods 1992-2003 and 1980-2003, value investors would have reduced risk by imposing sector neutrality on their portfolios whereas growth managers could have profited by relaxing sector constraints.

Keywords: Equity investments, technical analysis, portfolio management, equity strategies

Suggested Citation

Sefton, James A. and Scowcroft, Alan, Understanding Momentum. Available at SSRN: https://ssrn.com/abstract=713864

James A. Sefton (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom
+44 (0)20 7594 9128 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/j.sefton

Alan Scowcroft


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