Three Charts that Tell the Momentum Story

Momentum has historically delivered a substantial long-term premium, but capturing it requires accepting sharp losses during market reversals and maintaining a long holding horizon.

• Using the 2–12 momentum definition and monthly value-weighted portfolios from the Kenneth R. French Data Library, the analysis covers January 1927 to December 2024 and compares high-momentum stocks, low-momentum stocks, and the broad market.
• The highest-momentum decile compounded substantially faster than the market over the full period, while the lowest-momentum decile lagged; the figures are gross of trading costs, so implementation would reduce the theoretical premium.
• Momentum suffered steep drawdowns during abrupt market turning points, consistent with the momentum-crash analysis of Daniel and Moskowitz (2016), meaning the premium comes with significant short-term downside risk.
• Across the 1927–2024 sample, momentum outperformed the broad market in approximately 83% of rolling 10-year windows, suggesting that longer holding periods helped investors absorb periods of weakness.

Takeaway: Investors considering momentum should judge it over multi-year horizons and tolerate severe interim drawdowns, while recognizing that the historical results are based on public data and exclude the full costs of real-world implementation.