Global Momentum Strategies

Abstract

Here are some practical perspectives on momentum investing in stocks internationally. Momentum is generally more profitable on the long side than on the short side, making it accessible to a broad range of institutional capital, and both price and earnings momentum profits are significant globally. Earnings momentum internationally is distinct from price momentum; using price and earnings momentum in conjunction produces greater economic profits. Momentum profits co–move more weakly across markets than market indexes. Interestingly, while market correlations are much higher in down markets than in up markets, momentum correlations are low under both market conditions. There is no appreciable difference in momentum strategy profitability in up and down markets, which means timing is less important to momentum traders. Finally, momentum strategies are not riskless? there are often periods of several months when they have netted low or negative returns. The findings altogether suggest that momentum is useful in international portfolio management, but it should be implemented very thoughtfully.