Since it's hard to post equations on ET, I'll link ONE paper on the matter instead, http://www.cenet.org.cn/userfiles/2010-6-13/20100613145858930.pdf And perhaps the best known paper on the subject, Jegadeesh, N., and S. Titman, 1993, âReturns to buying winners and selling losers: Implications for stock market efficiency,â Journal of Finance 48, 65-91. If these are just 'fictional' talk, I'm curious as to what you think is 'real'?
I'm too lazy to look through lots of academic papers - do they account for full transactions costs and taxes? Also do they list the maximum drawdowns and volatility of the momentum approach compared to index buy & hold?
The point of the academic research into momentum is to show that such an effect exist (and its implications on a wide set of other theories on fundamental market structures), not whether it's a profitable investment approach; For the latter, check with the hedgies and asset managers who use such approach. There's a lot of them, but they tend not to publish their own internal research.
We are back to where we started. This is purely academic talk. Unrealistic models, mistaken prescriptions, futuristic predictions, the list goes on and on. We where studying deeper stuff during my MBA. All these momentum, models, risk models, regressions, and many others failed to predict what basic economics always teach us. I think I must agree.
What does 'basic economics' always teach us? enlighten us also - you do realize some of the world's largest CTAs and hedge funds trade on momentum strategies right? not exactly vague theories.
Read Milton Friedman and go here (www.mises.org) if you really want to learn some real stuff. Allow me to correct you. Hedge funds do not trade, they bet, they are the backbone of our casino finance economy. By the way, MANY of these hedge funds went belly up during the financial crisis. I wonder if they had a problem with Microsoft excel or Quickbooks.
Wait... what exactly does Milton Friedman has anything to do with this? It's not like Milton Friedman argued against the existence of momentum. Please explain what's the difference between "trade" and "bet"? Also, they are still around.
You misunderstand me... I think you're sadly incapable of or unwilling to understand the relatively obvious point that sjfan is making. He's right and you're being silly. P.S.: Also, maybe you can share what you're doing on a trading site if you have such a problem with "our casino finance economy" and speculation.
Alright I am off. Believe whatever you want to. Make sure your momentum models predict water, alternative energy and biochemistry the future revolutionaries industries to invest on the coming decades. see you around