Definition
The momentum factor invests in stocks that have outperformed recently, betting that trends continue. Typically measured over 2-12 months excluding the most recent month. Momentum is one of the most robust anomalies in finance, though it can suffer sharp reversals (momentum crashes) when trends break down.
Formula
Momentum = (Price Today / Price 12 Months Ago) - 1, excluding recent month
Example
A momentum ETF buys the top 20% performers over the past year, expecting recent winners to continue outperforming.
FAQ
What is Momentum Factor?
A factor strategy investing in stocks with strong recent performance.
How do you calculate Momentum Factor?
A common formula for Momentum Factor is: Momentum = (Price Today / Price 12 Months Ago) - 1, excluding recent month
Why is Momentum Factor important?
Momentum Factor helps investors evaluate investment strategies and make more informed decisions.