Momentum investing continues to be a cornerstone of systematic equity strategies, and our recent research shows that it deserves allocators’ full attention. In our latest review (to be published in 2026) we offer a comprehensive overview of the empirical basis and practical development.
Based on greater than 150 years of information and 1000’s of portfolio specifications, we affirm Momentum’s resilience while highlighting its transformation right into a multidimensional phenomenon. The momentum premium isn’t a statistical fluke or a product of information mining; Rather, it’s a consistent and significant range of returns that holds across all eras, regions and portfolio construction decisions.
For institutional investors, nevertheless, our results are each affirming and difficult: the dynamics are robust, but their implementation and risk profile have modified in ways in which require careful attention.
150 years of persistence… and the trend is rising
The long-term durability of momentum is maybe its most defining characteristic and the predominant reason it stays relevant to investors. Figure 1 illustrates this long-term performance, showing the cumulative returns of a straightforward long-short momentum strategy from 1866 to 2024.
Over that 150-year period, a straightforward long-short strategy that buys past winners and sells past losers turns an initial $1 into greater than $10,000, an annual return of about 8-9%. These returns aren’t only substantial, but in addition highly statistically significant, with T-statistics well above the thresholds typically used to find out whether an end result is real or as a result of likelihood.
Importantly, this finding doesn’t rely on how the portfolios are constructed. Whether we use value-weighted or equal-weighted returns, adjust the definition of momentum, or change the time period examined, the premium stays. Such robustness across specifications and sample windows reinforces the conclusion that dynamics isn’t an artifact of a selected methodology.
For institutional investors, the message is evident: the momentum has continued across eras, market conditions and portfolio designs, suggesting that it reflects a structural feature of economic markets moderately than a fleeting anomaly.
. The chart represents a snapshot of information fully accounted for through 2024. Source: Baltussen, Dom, Van V
However, momentum mustn’t be viewed as a single, unified strategy. Its performance depends heavily on how the portfolio is constructed. Design decisions corresponding to whether returns are value-weighted or equal-weighted, where breakpoints are set, industry neutralization, and inclusion of microcap stocks can impact each the extent of returns and the quantity of risk taken.
To quantify this sensitivity, we create greater than 4,000 variations of momentum portfolios. All generate positive Sharpe ratios, suggesting that the momentum premium is broadly robust. However, the performance range is considerable: the common Sharpe ratio is 0.61, but individual specifications range from 0.38 to 0.94. This indicates that reported returns may vary depending on the development of the factor. For practitioners, it highlights the importance of rigorous specification checks and transparency in factor design, particularly when benchmarking or reporting results.
In recent many years, dynamics research has expanded far beyond easy price trends. New types of dynamics capture alternative ways wherein returns proceed over time. Fundamental dynamics based on earnings surprises, analyst revisions or news sentiment reflect investors’ tendency to underreact to recent information. Residual Momentum focuses on company-specific return patterns, isolates company-level news, and typically produces smoother, sharper results. Anchor-based momentum, corresponding to the space to a stock’s 52-week high, uses behavioral patterns corresponding to anchoring and reluctance to sell at a loss.
Industry and network dynamics capture each top-down forces (sector trends, macro cycles) and bottom-up relationships (product-market linkages, analyst attention spillovers), while factor dynamics reflect slow capital flows into styles and chronic macro environments that favor certain characteristics. These alternative signals are incompletely correlated with traditional price dynamics and one another, allowing for meaningful diversification.
The multi-dimensional composite (EW_ALL), which equally weights price dynamics and ten alternative signals, delivers higher average returns, stronger T-statistics and significantly improved drawdown properties in comparison with price dynamics alone.
Figure 2 illustrates the cumulative performance of this alliance in comparison with traditional price dynamics since 1927, clearly revealing the diversification advantages and risk efficiency gains.
Source: Baltussen et al. (2026). Momentum Factor Investing: Evidence and Development, forthcoming within the Journal of Portfolio Management.
The blind spot
However, the Achilles heel of the dynamic stays its risk of crash. Momentum strategies are vulnerable to sharp reversals, especially during market changes. We document maximum drawdowns of as much as -88% for traditional price dynamics, accompanied by left-skewed and fat return distributions.
However, many various momentum signals are less volatile, and the multidimensional composite significantly reduces risk in comparison with price momentum alone. Building on previous work, we implement volatility scaling at each the portfolio and stock levels, dramatically reducing drawdowns and improving Sharpe ratios. The resulting risk-managed momentum strategy (RM_MOM) delivers an annual return of nearly 18% with volatility comparable to the usual momentum strategy, with drawdowns nearly halved.
Diversify the signals
For institutional investors, the implications are clear. Factor constructions are necessary, and robustness checks for all portfolio designs are critical. Diversifying momentum signals can result in superior risk-adjusted returns.
Managing crash risk through volatility scaling and multi-dimensional portfolios is critical for sustainable momentum exposure. While risk-based theories can explain a number of the premium, behavioral biases and arbitrage limits remain central to sustaining momentum.
We view momentum as an “eternal” feature of economic markets. However, implementation must evolve. Investors who pursue multidimensional, risk-managed momentum strategies are higher positioned to realize sustained alpha while managing the inevitable risks.
