March 29, 2011

History of Momentum Research

For those want to see where academic momentum all began, the first published paper was in 1937. It was titled Some A Posteriori Probabilities in Stock Market Action by Alfred Cowles III and Herbert Jones.  The Cowles Foundation for Research in Economics, which was formally at the University of Chicago and is now at Yale, was started by Cowles. Their impressive relative strength findings on 15 years of stock market data was remarkable, considering there were no computers in 1937.

The next published paper on momentum was in 1967. It was Relative Strength as a Criterion for Investment Selection by Robert Levy. He also authored a book around the same time called The Relative Strength Concept of Common Stock Forecasting. Nicolas Darvas authored a book in 1962 called How I Made $2,000,000 in the Stock Market. It was anecdotal, but was based on momentum and was a great read when I came across it in the 1970s. 

Cowles, Jones, and Levy should have given efficient marketers some cause for pause, but such was not the case. It wasn’t until 1993, with the publication of Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency by Jegadeesh and Titman, that momentum started attracting serious attention from the academic world. This may have finally happened due to the pioneering work in behavioral finance by Tversky and Kahneman in the 1970s.  Behavioral finance could now explain what the efficient market hypothesis could not. There are now over 1000 momentum research working papers and over 300 published in academic journals.  For a list of some of the prominent ones, see AQR Capital Management’s  Bibliography of Selected Momentum Research Papers.