Those investors interested in investing based on empirical evidence should find great value in Professor Ken French’s data library http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. His data library contains the returns of models based on various investment factors. At the data library, French has ten portfolios listed by momentum (see “10 Portfolios Formed on Momentum”). He gets his data from the Center for Research in Security Prices at the University of Chicago.
From the beginning of 1927 through the end of 2008, the overall market has returned an average of 9.28% a year. The highest momentum stocks (as defined by 12 month price return) returned an average of 16.83% per year. The frequency of outperformance of high momentum stocks is as impressive as the magnitude of outperformance. The table below shows the percentage of time periods where his highest momentum portfolio outperformed the market.
What’s more, this is just the returns of his value-weighted portfolio. The returns of the equal-weighted portfolio, which gives more weight to smaller-cap stocks, are even more impressive.
Dr. French’s models are completely systematic and emotions are banished.
Anyone care to argue that the markets are efficient?
[...] strength strategies, we often refer to the data found at the Ken French Data Library. Click here, here, and here for some of our past commentary on this data which highlights the magnitude and [...]