Jamie Catherwood at O’Shaughnessy Asset Management recently wrote a comprehensive piece on why the momentum factor will continue to deliver outperformance saying:
There are no certainties in investing, but one can be very confident that human nature will not be changing any time soon. Since shares first traded on the stock market in the 17th century, market participants and pundits recognized the fact that behavioral biases often cloud our investment decisions. Instead of simply recognizing this fact, however, investors can take advantage of these shortcomings to generate alpha through investment factors like Momentum.
In 2011, The Economist described this gap as “the lag between beliefs and the new reality.” Over one hundred years earlier, in 1910, The Economist referred to it as “the point… at which prudent optimism ceases and is replaced by emotional enthusiasm.”
Humans are unlikely to change their behavior and tendencies to over or underreact to news, and the Momentum factor is therefore poised to continue delivering strong outperformance.
You can read the entire article here: The Factor Archives: Momentum.
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