Momentum

Momentum is one of the most well-documented anomalies in financial markets. Research by Jegadeesh and Titman (1993) showed that stocks in the top decile of 12-month returns continued to outperform the bottom decile by roughly 1% per month over the following 3–12 months. This phenomenon persists across markets and asset classes.

Momentum investing involves buying recent winners and selling (or short-selling) recent losers. It can be measured on different timeframes: 1-month momentum, 12-month momentum, or multi-year trends. The risk: momentum strategies can suffer severe, sudden reversals during market regime changes (momentum 'crashes').

Example: Nvidia gained approximately 240% in 2023, driven by explosive AI chip demand. Momentum investors who identified the trend early — buying after the first big earnings beat — captured much of this gain. By late 2023, nearly every major institutional portfolio had increased Nvidia exposure.

Momentum signals are one of the inputs in the BMInsider Fear & Greed Index, and strong momentum in stocks held by smart money managers is highlighted in the Smart Money Tracker.