TY - JOUR T1 - Where Has the Trend Gone? <em>An Update on Momentum Returns in the U.S. Stock Market</em> JF - The Journal of Wealth Management SP - 29 LP - 40 DO - 10.3905/jwm.2017.20.2.029 VL - 20 IS - 2 AU - Steven Dolvin AU - Bryan Foltice Y1 - 2017/07/31 UR - https://pm-research.com/content/20/2/29.abstract N2 - Prior studies have found broad-based support for the efficacy of trading strategies based on momentum in stock returns. More recent studies, however, have noted a declining benefit relative to that identified in seminal studies on momentum. These recent studies, however, primarily examined time periods ending prior to or immediately following the 2008 financial crisis. Thus, we extend this line of research by exploring the profitability of momentum trading in the U.S. equity markets over the broader 1986 to 2015 time period. Our results for the earlier part of our sample period (i.e., 1986–2006) fall in line with previous studies, as we find a monotonic relationship between decile portfolios formed based on their prior six-month performance and subsequent twelve-month holding period excess returns. In contrast, when we evaluate more recent periods (i.e., 2007–2015 and 2010–2015), we find dramatically different results. In particular, alphas for the winner portfolio, which have historically been the highest, are actually negative during both subperiods. Furthermore, the curvature of the recent portfolio return distribution is clearly no longer monotonic. Rather, it follows a more inverted U-shaped curve from the winner portfolio (P1) to the loser (P10) portfolio, with excess returns cresting around the fifth decile portfolio (P5). In fact, we find that the risk-adjusted returns of the winner portfolio (P1) are significantly less than those of the middle portfolio (P5) for both recent subperiods. These results suggest that individual and institutional investors seeking to profit from traditionally based momentum trading strategies may need to rethink their approaches.TOPICS: Analysis of individual factors/risk premia, security analysis and valuation, portfolio construction, performance measurement ER -