Are you utilizing any macroeconomic factors in your decision making? If so, which ones?

Would like to use only total return price indexes (pch, std of it etc..)

Industry momentum.

See Moskowitz and Grinblatt(1999)

Comincia da te!

Levy.

See this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2292544

@Yan, interesting study. thanks

If by momentum investing you mean some sort of permanent portfolio with a few rebalancing every year, then you have all the gammut spanning from Harry Browne (simple rebalancing, no momentum) to Gary Antonacci (who coined his approach "dual momentum" ). Antonacci has a few papers online (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2244633 or http://www.optimalmomentum.com/RiskPremiaHarvesting.pdf as starters). As Yan pointed this is a persistant anomaly. On any rebalancing based on a "fixed day of month/year" you also have this caveat http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1899000 .

And heave a look at the paper by Asness, Moskowitz and Pedersen (Value and Momentum everywhere, 2012), actually both on value and momentum investing, with useful insights.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2174501

It is a kind of "benchmark" among financial papers dealing with value and momentum. You will find quoted almost every major momentum investing academic paper.

Antonio, Take a look at Relative Rotation Graphs. These allows you to analyse complex relative data. On Bloomberg its RRG, it is on Eikon and Market Analyst www.mav7.com/rrg. Also now at www.stockcharts.com. See www.relativerotationgraphs.com for details. It allows any data to be viewed and the trend in performance versus peers and a benchmark. I should declare I am a fund manager and a partner in the company RRG BV.

This is very insightful information. Being able to recognize the direction of the momentum can sometimes be a challenge http://attheforexcenter.com

Antonio, are you considering regions or specific countries? Also, look at Fama and French 1989 for business conditions in relation to industry momentum.

Thanks for sharing the link, Yan.

Country/region momentum is difficult to identify. The industrial bias of certain country/region can make things a mass. Industry momentum domains.

Probably a better way for global or EM model is to use clustering tech to identify the (latent) statistic dimensions instead of using the explicit groups, example industry and/or country, for group/cluster momentum.

MSCI & FTSE momentum factor:

I think is useful to have a look to what index houses think about momentum

MSCI:http://www.msci.com/eqb/methodology/meth_docs/MSCI_Momentum_Indexes_Methodology_Sep2014.pdf

FTSE:http://www.ftse.com/products/downloads/FTSE_Momentum_Factor_Paper.pdf

Momentum Crashes, by Kent Daniel and Tobias J. Moskowitz

I think this paper is also worth reading: (...) across numerous asset classes, momentum strategies have historically generated

high Sharpe ratios and strong positive alphas relative to standard asset pricing

models. However, the returns to momentum strategies are negatively skewed:

they experience infrequent but strong and persistent strings of negative returns.

These momentum crashes are partly forecastable. They occur in what we term

“panic” states – following market declines and when market volatility is high,

and are contemporaneous with market “rebounds.”

http://www.columbia.edu/~kd2371/papers/unpublished/mom10.pdf

Zheng : clustering at single stock level ?

Start with the data. How much reliable data do you have?

->Volker: working with daily data starting 1.1.2001 from MSCI total gross return indexes in USD (23x developed countries + 10x world industries ), where ETFs are available.

Yes. like industries and regions which are grouping stocks by some explicit characters that grouped stocks share, clusters are latent factors that explain the co-movements of stock returns.

The momentum story says, if not assumes, that something worked in the past will keep performing in the coming future for a while. Hence, three inputs are mentioned and need to be identified: what is the "something", how long was the " past", and lastly, how long will the "future" be.

Dear Antonio,

CAPTURING STOCK MOMENTUM

Momentum trading is holding a fast-rising stock for a few days, weeks, or months.

It is a strategy where we try to capitalize on a stock’s trend in hopes of riding the move further. For practical reasons, I will mention stocks in an uptrend only.

Capturing momentum has always sparked interest among both academics and practising professionals alike. Academic experts claimed that it was impossible to beat the market over time. Over time your investment returns would pretty much well reflect the market as a whole.

However buy and hold (“hope and pray”) investing and simple diversification, as in managed funds, have not worked over the last decade. These failed approaches will not work over the foreseeable future either.

Here are a few simple tentative rules of thumb to follow in spotting early momentum stock runs.

You might consider those rules that will enable you to nail down stable, predictable, repeated price patterns.

RULE 1: RISING TRENDS. One of the key traits of a good momentum stock is a rising stock price for a few weeks or even months.

Target stocks in a recently fast rising uptrend. The stock is in an uptrend if the current price reflects higher highs and higher lows.

RULE #2: INSTITUTIONAL OWNERSHIP. Watch for huge, unusual volume spikes. The real forces behind stock market momentum are the big institutional players, mutual funds and hedge funds that trade in and out of stocks.

When big players buy and hold huge blocks of shares, they exert heavy upward pressure. So look for a strong trend that institutional ownership has been recently increasing.

RULE #3: PRICE REVERSALS. Momentum stocks can unexpectedly reverse into a downtrend. For this reason, you should never buy and hold a momentum stock.

Instead, use moving averages as an exit signal. If you see the fast-moving average drop below the slow-moving average, sell immediately. But also…

RULE #4: USE TRAILING STOPS (the art of knowing when to sell). Momentum stocks can go down just as fast as they can go up. They often drop like a rock after reversing. That is why you should always place an initial stop below your entry price. Stops protect you from heavy losses and prevent you from selling stocks prematurely. They also take the emotion out of the sell decision.

RULE # 5: RELATIVE STRENGTH RATING OF OVER 70. Relative strength index is a technical indicator commonly referred to as RSI. This means the company is already outperforming over 70% of the stocks in the market.

RULE #6: RAPIDLY GROWING EARNINGS. They have rapidly growing earnings. As we all know, earnings growth drives stock prices.

RULE# 7: THEY BEAT ANALYST EARNINGS ESTIMATES. Stocks are priced to reflect future earnings as determined by analysts’ estimates. Those stocks are the most likely candidates for stellar momentum-based returns over the course of a few weeks or months.

RULE# 8: PROFIT MARGINS EXCEED THE INDUSTRY AVERAGE. Companies that can keep costs lower and prices higher make higher returns.

I trust this works for you. Should you request more detail, please send me an email to:

jimmy@adventuremfinanciae.com

Jimmy: thank you for your rules, however I need to focus on countries and industries, not single stocks, and only on prices signals, not fundamentals

zheng: thank ou, I need to invest trough ETF, thus clustreing on single stokcks is not a workable way for me. Thanks again

If you want to use ETFs to gain country and industry exposure, you can either go to the issuer website e.g. IShares.com and take a look at their offerings or to websites like etfdb.com, etf.com that allow you screen the ETD universe for suitable candidates. However I will note that the most liquid ETFs tend to be in USD. I'm trying to put together a sensible portfolio of ETFs in GBP. #slimpickings

Antonio - I have developed some proprietary research for the US equity market that can be used for sector/industry rotation decisions. The research identifies sector/industry and market (US) reversal points - I leave it to the investor to decide whether to hedge, take a contrarian position, or capitalize on upcoming momentum. I utilize Select Sector SPDR® Funds as the investment vehicle/proxy.

Send me a invite and we can discuss if you are interested to know more.

Hi Antonio, look at Relative Rotation Graphs which graphically repeasent complex relative momentume relationships against a benchmark. Can be Asset Classes, Indices, Sectors down to individual securities and ETFs. You have control of the analysis and the securities. Available on Bloomberg RRG, Thomson Reuters Eikon, Try it on Market Analyst MAV7.com/rrg or look search for Relative Rotation Graphs at www.stockcharts.com. Finally, they are explained at www.relativerotationgraphs.com. I am sure they will show you the analysis you are after.

I would advise to only enter momentum trades on a pullback. My analysis suggests that once you have enough data to realize you have positive momentum....the security is ripe for a pullback. Enter after the pullback and have a trend based exit.

Jeremy how do you measure momentum ?

Hi Antonio, I measure momentum in various ways. To generalize, anytime you have an indicator that is registering a "trend" you have momentum. For example, if you have an upward sloping moving average or a positive linear regression slope, it suggests that the underlying price series has moved in such a way to influence these various types of analysis and that "signal" is evidence of positive momentum. Of course, you can analyze momentum over different time periods (short, medium and long term). My suggestion is that if you have positive long or medium term momentum, that you wait for a pullback (ie short term momentum is negative) before you enter the trade. Momentum is tricky. One of the tricky parts is knowing when to exit your trade. Momentum trades usually end badly, so getting out before the party is over is probably a safe play. Typically commodities and currencies are better momentum trades vs equities. Equities exhibit a tendency to revert to the mean. Hope that helps.

I'm with Jeremy. I trade momentum only on pullback to support lines, using Point and Figure charting only. I measure momentum by volume and interest level on OTM options for the ETF or cash derivative (DIA, SPX, OEX, etc) that I am trading as an option