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Bridge over ocean
1 November 1999 Financial Analysts Journal Volume 55, Issue 6

The Profitability of Momentum Strategies

  1. Louis K.C. Chan
  2. Narasimhan Jegadeesh
  3. Josef Lakonishok

Momentum strategies based on continuations in stock prices have attracted a wide following among money managers and investors. We evaluated the profitability of price momentum strategies based on past return and earnings momentum strategies based on standardized unexpected earnings and revisions of consensus forecasts. The strategies proved to be profitable for intermediate horizons. Chasing momentum can generate high turnover, however; hence, implementation of momentum strategies requires a focus on managing trading costs. Comparing the strategies yielded evidence that they reflect distinct phenomena and provided information about the sources of profits. The results indicate that the market is slow to incorporate the full impact of information in its valuations.

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