Momentum Has Lost Some Momentum

Kirzner Fervor has a great post on building a trading strategy off the stocks market’s momentum. The bottom line is that historically, it’s worked very well, but the in recent years, the advantages have dissipated. Such is the story of much data-mining.
After my initial post on the market’s ability to carry a one-day rally or sell-off into the next day, I had an emailer point out that the effect has worn off in recent years. I had meant to follow up on it, but I got distracted. Such is the story of much blogging.
I’m still amazed at the historical effect of the stock market’s momentum. To quote myself:

This means that the market’s entire gain (capital gains since 1950) has come on days following a 0.64% up move. The rest of the time (over 80%), the market is net flat. Half the market’s gain came on day’s following 3.2% up moves. On average, that happens slightly less than once a year.

Posted by on May 23rd, 2008 at 11:04 pm

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