Does momentum investing still work? What our data shows

Quantooo Lab · 2026-10-22

Momentum is the idea that stocks which have risen over the past year tend to keep rising for a while, and those that have fallen tend to keep falling. It has been studied for decades and is one of the most cited patterns in academic finance. So does it still work?

What is momentum investing?

Momentum investing means buying stocks with strong recent returns and avoiding, or selling, those with weak ones. The classic academic version is 12-1 momentum: the return over the past 12 months, skipping the most recent month, because very short-term moves tend to reverse rather than continue.

How do you measure momentum?

The two common measures, both used in our trend score, are:

• 12-1 momentum: the price change from 12 months ago to 1 month ago.
• Distance from a moving average: how far today's price is above or below its 100-day average.

Each stock's values are turned into percentiles against the other stocks that day, so 80 means stronger than 80% of them.

Does momentum still work?

In our test it was the strongest of twelve approaches, and it was still not reliable. From 2020 to 2025, ranking the S&P 100 by trend gave an average rank correlation with next-month relative returns of +0.0149, with a t-statistic of 0.64. A long-short portfolio built on it roughly broke even (Sharpe +0.02). Positive, but well within what luck produces.

That does not contradict the academic research. Momentum studies usually cover thousands of stocks over many decades. Our test covers about 100 very large companies over six years, a much harder setting: large caps are heavily researched, and the 2020 to 2025 period included sharp reversals, such as the 2022 rotation, that are known to hurt momentum.

Why does momentum sometimes fail badly?

Momentum strategies are vulnerable to sudden reversals, often called momentum crashes. When a falling market turns sharply upward, the beaten-down stocks a momentum strategy avoids or shorts tend to rebound hardest. Several of the worst months for momentum in history came right after market bottoms.

Is momentum the same as trend following?

They are related. Momentum usually compares stocks with each other (which stocks are strongest), while trend following usually looks at one asset against its own history (is it above its moving average). Our trend score combines both views for each stock.

How can you see momentum on this site?

Every stock page shows its trend score with the calculation steps, and the journeys page shows how a stock's score changed over time. The model leaderboard has the trend rule's full results, year by year. As always, a high trend score describes the past year. It is not a forecast.

Open questions for students and researchers

Questions without a single right answer. Pick one and share your reasoning in the discussion below.

1. Momentum in our test was weak on 100 large US caps from 2020 to 2025. Is this evidence against momentum or against momentum in large caps over a short window? Design a test that tells the two apart.
2. Momentum crashes tend to follow market rebounds. Could a volatility forecast predict when to switch momentum off? How would you avoid overfitting that switch?
3. Why does skipping the most recent month improve momentum signals? Relate it to short-term reversal and liquidity.

Debate: three perspectives

An illustrative debate written by the author to lay out the main viewpoints. The three voices are roles, not real people. Your view is welcome in the discussion below.

The Sceptic: Momentum was published decades ago. If it still worked reliably, the crowd would have arbitraged it away.

The Practitioner: It still shows up across many markets and asset classes, but with long dry spells and sharp crashes. Whether investors can live with that is a behavioural question as much as a statistical one.

The Academic: Momentum is one of the most replicated anomalies in finance. The live debate is about its cause: risk compensation, slow diffusion of information, or investor behaviour. Each predicts different failure modes.

Which view is closest to yours, and what evidence would change your mind?