Feb 3, 2010
Q&A
Q&A: Can Investors Profit from Momentum? 
A prominent money management firm has recently launched several mutual funds that seek to exploit the positive momentum effect in stock prices. Why does this well-publicized anomaly persist and under what circumstances can investors expect to profit from it?

EFF/KRF: The momentum anomaly has been observed in most major markets (Japan is the exception). Many academics claim that trading costs will wipe out any benefits of trying to trade actively on momentum. This will now be tested by live funds. The results will be interesting. 

History provides a cautionary tale. Another anomaly that was all the rage among academics was the January effect. Small stocks tend to have high returns in January and lower return in other months. Interestingly, this anomaly seems to be weak in the live returns of small cap mutual funds, raising the possibility that there is something weird in the quoted prices for small stocks around the turn of the year on major databases.

 
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ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
This information is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Dimensional Fund Advisors and does not represent a recommendation of any particular security, strategy or investment product. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to Dimensional Fund Advisors LP.