New research challenges a long-standing rule in momentum investing—and reveals surprising insights about when to use it
For decades, investors using momentum strategies have followed a simple rule: ignore last month’s returns. This “skip-month” convention has been standard practice since the 1990s, designed to avoid short-term reversal effects where stocks that jump up one month tend to fall back ...
This research presents a compelling challenge to the conventional wisdom in momentum investing, particularly the "skip-month" rule. The study's methodology is robust, analyzing nearly 50 years of industry-level data and comparing two distinct strategies. However, it's important to note that the findings are based on long-only momentum portfolios and do not account for transaction costs, leverage, or shorting, which could impact real-world applicability.
The key insight—that the most recent month...