
Video Presentation of Dual Momentum
Since the research of Jegadeesh and Titman in the early 1990’s, momentum has been one of the most heavily researched finance topics. Continuing research has firmly established momentum as an anomaly that works well with nearly all markets including equities, stock indices, currencies, commodities, real estate, and bonds. Out-of-sample research has shown momentum to be effective from the early 1800’s up to the present. Research also shows it works best when applied to geographically diversified stock indices.
The premier market anomaly is momentum. Stocks with low returns over the past year tend to have low returns for the next few months, and stocks with high past returns tend to have high future returns.
–Fama & French
Investors today use momentum the same way it was discovered by Cowles and Jones in 1937 using relative momentum.
Relative momentum looks at price strength with respect to other assets. Absolute momentum uses an asset’s own past performance to infer future performance. Absolute momentum can reduce downside exposure as well as enhance returns. The best approach is to use both types of momentum together. That is what dual momentum is all about.
But most applications of momentum today use momentum with individual stocks and ignore absolute momentum. In order to remedy this situation, we developed a publically available model called Global Equities Momentum (GEM) that applies dual momentum to geographically diversified stock market indices. We also have more advanced proprietary models used by family offices and investment advisors.