With Januaries (a month in which lagged “losers” typically outperform
lagged “winners”) excluded, the average monthly return to a momentum
strategy for U.S. stocks was found to be 59 bps for non-quarter-ending months
but 310 bps for quarter-ending months. The pattern was stronger for stocks with
high levels of institutional trading and was particularly strong in December.
The results suggest that window dressing by institutional investors and tax-loss
selling contribute to stock return momentum. Investors using a momentum strategy
should focus on quarter-ending months and securities with high levels of
institutional trading.