Momentum Investing Strategy: Evidence on European & American Stock Markets

At the beginning of nineties’ two researchers, Jegadeesh and Titman, found out how some investment funds were constantly beating the market. The strategy adopted by those funds concerned the purchasing of best performing securities and the selling of worst performing ones. The philosophy behind this strategy, “Buying high, selling low”, is known as Momentum. Over the last thirty years, a wide number of economists and researchers have analyzed this phenomenon, in order to find its sources and drivers. At the same time, a great number of traders, financial institutions and investment funds have tried to exploit this anomaly for gaining abnormal returns against the market. Albeit more than two decades have passed, there still isn’t any sort of evidence or certainty concerning Momentum. Over time, different theories have argued on its origins and causes, in particular two schools: the neoclassical economists and the behavioralists. While the former explain the momentum phenomenon in a short term view that is not able to jeopardize the Efficiency Market Hypothesis, the latter are confident on the existence of several investors’ anomalies due to the non-rational human behavior.