Alternative Momentum Signals Using Price Dynamics and Residual Returns
Summary
The document explores how momentum results can change with the definition of the signal. It seeks alternatives to conventional lookback price appreciation, including measures based on changes between price averages, a physics-inspired construct, and returns left unexplained by market regressions. The discussion points to research examples rather than presenting a complete catalogue or a tested implementation.
One proposed framework decomposes a price process into position, velocity, and acceleration, then uses these components to characterize momentum. Another cited approach uses idiosyncratic returns from market regressions. The document also references foundational winner-loser and overreaction studies as background for conventional momentum and notes that research spans other asset classes. These references suggest directions for comparing signals, but the text supplies no formulas, datasets, validation results, or evidence that a creative measure will generalize. Any claimed advantage would need independent testing across assets and periods, with appropriate controls for market exposure and implementation effects.
Key ideas
- Momentum performance depends on how the signal is defined and measured.
- A physics-inspired approach represents price dynamics through position, velocity, and acceleration.
- Idiosyncratic returns from market regressions provide another possible momentum signal.
- Foundational winner-loser and overreaction studies offer background for conventional momentum research.
- The document suggests research directions but gives no implementation details or comparative test results.
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Full text
# The Definition(s) of Momentum # The Definition(s) of Momentum I am currently studying the Momentum strategy and its differences in results (returns) when we change the formula describing momentum. There are indeed no accurate formulas for implementing the momentum strategy in an investment fund. For example, you can use the last close price minus the first close price of the last 6 months (or 1 month); but you can also use the average of the last 6 months prices minus the average of the last 7 days prices. There are a few examples of definitions/formulas like that. So I have the purpose of testing a lot of those formulas using a MATLAB code, but I can't find those definitions, especially recent and creative ones. So if any of you has a link or a list with all those different formulas/definitions, or even any thoughts regarding a recent and decent momentum formula, that would be great. EDIT: I would like to add more explanation regarding my request. --> I am looking for more "unofficial" definition of momentum (exactly the opposite of those I gave as an example see above). In other words, definitions that are different from the classic definition of Jegadeesh & Titman - An example of a creative, and unexpected definitions would be the "physical price momentum" found in the article "Physical Approach to Price Momentum and Its Application to Momentum Strategy" (Jaehyung Choi, 2014). In this article, they use the momentum definition from physics litterature, and compute the momentum returns in S&P500, by using it... and receive larger return than with the "traditional" momentum definition. - Another example is from the article "Eureka! A Momentum Strategy that Also Works in Japan" (Denis B. Chaves, 2012) that uses the idiosyncratic returns from market regressions for his own definition of momentum. ## Answer by user25064 (score 9, accepted) https://quant.stackexchange.com/a/12970 Kenetic Component Analysis If I am to summarize the work of the authors from a broader view than that which is taken in the abstract, essentially the price process is decomposed into position, velocity and acceleration reminiscent of projectile motion in classical mechanics. I added this as an answer so that if @Pierre wants to accept it he may. ## Answer by FreshF (score 6) https://quant.stackexchange.com/a/12958 You may want to have a look at the papers by - Jegadeesh & Titman (1993) Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency - De Bondt & Thaler (1985) Does the stock market overreact? They are (afaik) the by far most cited publications on momentum (and the calendar-time-method to calculate momentum returns). You should get a basic definition of momentum in stock returns and momentum in general after having read both papers. There is also tons of research about momentum in other asset classes.
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