Momentum Long Markers

Question 1

What is momentum?

Answer 1

Momentum is the phenomenon that stocks which have performed well continue to perform well
in the future, and stocks that have continue to perform poorly. So with regard to investing, you go long with well performing stocks or you avoid/short sell low performing stocks.

Question 2

Empirical properties of momentum (2)

Answer 2

Most pronounced over medium-term horizons, typically 3 to 12 months. they capture the actions of a broad range of market participants, including both short-term traders and longer-term investors. earnings reports influence investment making decisions and contribute to momentum effects.

Volatility and Risk - Periods of market correction or reversal can lead to significant losses for momentum strategies, as seen in episodes like the 2008 financial crisis.

Fat tails, negative skewness, crash risk, positive average returns, negative
correlation with value

Question 3

Why Does Momentum Exist? Main Theories: Risk and Anaomly

Answer 3

Under-reaction to the news
Disposition - selling winners to early or keeping onto losing stocks for too long

Question 4

Momentum risks + reasons for poor performance (check slides for that)

Answer 4

Crash risk - market goes left

Question 5

Reversal meaning

Answer 5

Reversal is the opposite, where past losers win and past winners lose, observed over shorter (weekly) and longer (3 to 5 years) periods