Entering text into the input field will update the search result below

Momentum In Industries

Jun. 08, 2020 2:11 PM ET
Larry Swedroe profile picture
Larry Swedroe


  • There's a large body of evidence supporting the benefits of momentum strategies, both time-series (trend or absolute) and cross-sectional (relative) momentum.
  • New research analyzed the performance of industry momentum strategies, providing a test of pervasiveness.
  • Findings demonstrate the efficacy of industry momentum strategies using various holding periods, providing test of robustness.

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. There are two types of momentum: cross-sectional momentum (a measure of relative performance) and trend-following (or time-series) momentum (an absolute measure of performance). As presented in “ Your Complete Guide to Factor-Based Investing,” both types have been found to be persistent across time and economic regimes; pervasive around the globe and across stocks, bonds, commodities and currencies; robust to various formation periods; and have well-documented behavioral explanations for why they have persisted post-publication. And with the use of patient trading strategies, they survive transaction costs. In another test of pervasiveness, the December 2018 paper “ Factor Momentum Everywhere” demonstrated that there is also momentum in factors.

Klaus Grobys and James Kolari contribute to the literature with their study “On Industry Momentum Strategies,” published in the Spring 2020 issue of The Journal of Financial Research. They investigated the asset pricing implications of different industry momentum strategies, sorting U.S. industry portfolios into quintiles. The first group comprised industries that had the lowest returns in the previous month, and the fifth group comprised industries with the highest returns in the previous month. They built 48 U.S. industry portfolios using data from Kenneth French’s website. Portfolios were value weighted. A zero‐cost strategy was constructed that was long (short) the fifth (first) portfolio group. Their sample period was July 1926 to February 2018. They built three strategies: a 1-0-1 strategy (portfolio formed based on prior month returns and held for one-month); a 6-1-1 strategy (portfolio formed based on prior six-month returns, excluding the most recent month, and held for one month); and a 12-1-1 strategy (portfolio formed based on prior 12-month returns, excluding the most recent month, and held for one month). Traditional industry momentum strategies cited in the literature had examined the 6-1-1 and 12-1-1 strategies. Following is

This article was written by

Larry Swedroe profile picture
Larry Swedroe is head of financial and economic research office for Buckingham Wealth Partners,  a Registered Investment Advisor firm in St. Louis, Mo.. Previously, Larry was vice chairman of Prudential Home Mortgage. Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College. To help inform investors about the passive investment approach, he was among the first authors to publish a book that explained passive investing in layman’s terms — The Only Guide to a Winning Investment Strategy You'll Ever Need (1998 and 2005). He has authored seven more books: What Wall Street Doesn't Want You to Know (2001), Rational Investing in Irrational Times (2002), The Successful Investor Today (2003), Wise Investing Made Simple (2007), Wise Investing Made Simpler (2010), The Quest for Alpha (2011), and Think, Act, and Invest Like Warren Buffett (2012). He also co-authored eight books: The Only Guide to a Winning Bond Strategy You’ll Ever Need (2006, with Joe Hempen), The Only Guide to Alternative Investments You’ll Ever Need (2008, with Jared Kizer) and The Only Guide You’ll Ever Need for the Right Financial Plan (2010, with Tiya Lim and Kevin Grogan), Investment Mistakes Even Smart Investors Make (2011, with RC Balaban), The Incredible Shrinking Alpha (2015 and 2020 with Andrew Berkin) Reducing the Risk of Black Swans (2013 and 2018 with Kevin Grogan), Your Complete Guide to a Successful and Secure Retirement (2018 and 2020 with Kevin Grogan), and Your Essential Guide to Sustainable Investing (2022 with Sam Adams). He writes for AdvisorPerspectives.com, AlphaArchitect.com, and TheEvidenceBasedInvestor.com. You can follow him on Twitter  (http://twitter.com/larryswedroe).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.