The Momentum Effect

From Credit Suisse:

The two sets of bars on the left of Figure 8 relate to rotation based on prior-year returns for the USA (dark blue) and the UK (gray).  Each set of bars shows the annualized returns from investing in the previous year’s worst performers (losers), through to investing in the best quintile (winners).  If industries periodically become over- or undervalued, and then revert to fair value, we might expect reversals, with past losers beating past winners.  Figure 8 shows the reverse is true.  There is substantial industry momentum, with winners tending to continue to win, and losers having a propensity to continue their losses…

Figure 8

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