Global Momentum Strategies: A Portfolio Perspective

Abstract

We provide practical perspectives on momentum investing in stocks internationally. First, momentum is generally more profitable on the long side than on the short side, making it accessible to a broad range of institutional capital. Second, both price and earnings momentum profits are significant globally. Third, internationally, earnings momentum is distinct from price momentum, and using price and earnings momentum in conjunction produces larger economic profits. Fourth, momentum profits have weaker co-movements across markets than market indices. Interestingly, while market correlations are much higher in down markets than in up markets, momentum correlations are low in both market conditions. Fifth, momentum strategies do not differ appreciably in profitability between up and down markets, which means timing is less important to momentum traders. Finally, momentum strategies are not riskless-historically there have often occurred periods of several months where they have netted low or negative returns. Altogether, these findings suggest that momentum is useful in international portfolio management, but its implementation should be thoughtfully considered.