Consistent Momentum: Selecting Persistent Stock Winners and Losers

Summary

The document describes a US equity long-short momentum strategy that selects stocks appearing among recent winners or losers in two overlapping formation windows. It buys stocks ranked in the top decile in both windows and shorts those in the bottom decile, equally weighting positions. The portfolio is formed monthly, held for six months without rebalancing, and includes a one-month skip between formation and holding. The rationale is that persistent winners and losers may continue to outperform or underperform their less consistent peers.

The cited study reports that consistent winners outperform inconsistent winners, while consistent losers underperform inconsistent losers. The combined strategy’s average monthly return is reported as 1.25%, compared with 1.06% for traditional momentum and 0.47% for inconsistent momentum; the advantage is described as remaining significant after factor adjustment. The document links persistence to firm size, idiosyncratic risk, institutional ownership, and trading volume. It does not establish crisis-hedging properties or provide enough implementation detail here to assess costs, robustness, or live performance; it explicitly calls for further risk analysis.

Key ideas

• The strategy selects stocks that remain in the winner or loser decile across two overlapping formation periods.
• It goes long consistent winners and short consistent losers with equal weights.
• The proposed portfolio is held for six months, with a one-month skip and no rebalancing during the holding period.
• The cited research reports stronger post-formation results for consistent groups than for inconsistent groups.
• The document leaves crisis performance and diversification potential unresolved.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.