[[Start here]] → [[Sources]] → Jegadeesh & Titman --- This is the 1993 landmark paper that put the “momentum effect” in stocks on the map. They looked at US stocks from 1965–1989 and found that buying recent winners and shorting recent losers ([[momentum continues for three to twelve months|over 3–12 month lookbacks]], held for 3–12 months) earned about **1% abnormal return per month**, even after risk adjustment. > Strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods. They found the effect is strongest in the 6-6 strategy (rank on 6 months’ returns, hold for 6) - with *excess returns* of 12%. It’s a genuine continuation effect - winners keep winning for a while, and losers keep losing - and it’s not due to any small cap effect or seasonality. They also found that: * the momentum effect is weakest in January (long-short is about -7% in January), but positive in all the other months. * momentum partially reverses after a year *“The cumulative returns reach a maximum of 9.5% at the end of 12 months but decline to about 4% by the end of month 36.”* They interpret it as **underreaction** - that investors don’t fully adjust to new information, so prices drift in the same direction as news comes out - especially around subsequent earnings announcements. This [[momentum continues for three to twelve months|intermediate continuation effect]] has become the core of modern **momentum investing**. It sits between the [[momentum reverses in the short term|one-month reversals]] and the [[momentum continues for three to twelve months|three-to-five-year long-term reversals]] - the middle gear in the **structure of price momentum**. --- [^1]: Jegadeesh & Titman - [Returns to Buying Winners and Selling Losers](https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1993.tb04702.x)