Rolling 10-Year Momentum Returns

To get a sense for just how effective momentum investing has been over time, consider the rolling 10-year returns for the following momentum index compared to the S&P 500.  The data starts in January 1927 so the first 10-year period ends in January 1937.

momentum 02.26.14

Source: Ken French Data Library, Global Financial Data (1/1/1927 – 1/31/2014); Returns include dividends but do not include any transaction costs; The momentum index is based the Ken French momentum series (Equal-weighted index of the top half market cap, top third momentum of a universe of U.S. stocks).  This momentum index rebalanced monthly based on trailing 12 month returns of the securities.  

The chart below measures the difference between the 10-year returns for the momentum index minus the 10-year returns for the S&P 500:

momentum2 02.26.14

Note that the momentum index outperformed the S&P 500 in every rolling 10-year period during this study.  Yes, some 10-year periods were better than others for momentum from a relative performance perspective.  Also, the difference in performance between momentum and the S&P 500 for the 10-year period ending 1/31/2014 was 2.97%.  This is on the lower end of the range over the test period.  It would not surprise me at all to see this margin of outperformance revert to the mean in the years ahead (the average difference in performance between momentum and the S&P 500 for rolling 10-year periods was 5.63% over this test period).

Past performance is no guarantee of future returns.

4 Responses to Rolling 10-Year Momentum Returns

  1. Mike Moody says:

    Wow! Where do I sign up?

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  3. P.J. Steele says:

    Momentum investing in detail can be found at http://www.puremomentuminvesting.com/

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