Momentum Investing
Momentum Investing is an investment strategy that involves buying securities that have had high returns over a certain period and selling those that have had poor returns over the same period. The core idea behind this strategy is that assets which have been performing well will continue to do so in the near future, and those which have been performing poorly will continue to underperform.
Definition: Momentum investing is an investment strategy based on making buy and sell decisions according to the trend of asset prices. Specifically, the core idea of this strategy is that when the price of an asset continues to rise or fall over a period of time, investors expect this trend to continue, thus buying when prices rise and selling when prices fall.
Origin: The concept of momentum investing can be traced back to the late 19th century, but it gained widespread research and application in the 1980s and 1990s. Eugene Fama and Kenneth French systematically analyzed the momentum effect in their 1993 study, revealing the effectiveness of momentum investment strategies.
Categories and Characteristics: Momentum investing can be divided into short-term momentum and long-term momentum. Short-term momentum usually refers to price trends of 1 to 3 months, while long-term momentum refers to price trends of 6 to 12 months. Short-term momentum strategies are more suitable for high-frequency traders, while long-term momentum strategies are more suitable for long-term investors. The main characteristic of momentum investing is its reliance on market trends, making it suitable for highly volatile markets.
Case Studies: 1. In the early 2000s, tech stocks experienced a significant upward trend. Momentum investors bought tech stocks during this period and sold them when prices peaked, thus achieving substantial gains. 2. In early 2020, the COVID-19 pandemic led to a significant drop in global stock markets. Momentum investors sold assets at the beginning of the market decline and bought back when the market bottomed out and rebounded, thereby reducing losses and profiting from the rebound.
Common Questions: 1. Is momentum investing always effective? Momentum investing is not always effective; market trends can suddenly reverse, leading to investor losses. 2. What are the risks of momentum investing? The main risks of momentum investing are market volatility and trend reversals. Investors need to closely monitor market dynamics and adjust their strategies accordingly.
