Thanks for your article. I like the scientific approach, but one thing I find missing is just a very practical aspect: in most cases it's not retail investors driving the market but large funds and paper. They need a lot of volume to get in and out of positions just because of their sheer size, and even if they just wanted to buy the 52-week high, for example, they simply can't do that, because there's not enough volume. Instead they have to build their position over time and by that they end up driving price higher more or less inevitably. And the more money there is, the bigger the funds (and ETFs) will be, and the more they will drive the momentum effect.
That's not to say that the other factors you mention don't exist or are irrelevant, I just find that simple explanations like these (or the fact that large funds are not necessarily quick to make decisions even if all fundamental facts are known instantly just because of the way their investment process is structured) tend to get lost in an academic study like this even though they might play a decisive part in the effect observed.
If there was no such thing as momentum then nothing would ever change because the forces of mean reversion would collapse all motion into a static equilibrium. As it happens, change is the only ineluctable and pervasive characteristic of the universe. Hence momentum is inevitable and stands in no need of explanation.
Thanks for your article. I like the scientific approach, but one thing I find missing is just a very practical aspect: in most cases it's not retail investors driving the market but large funds and paper. They need a lot of volume to get in and out of positions just because of their sheer size, and even if they just wanted to buy the 52-week high, for example, they simply can't do that, because there's not enough volume. Instead they have to build their position over time and by that they end up driving price higher more or less inevitably. And the more money there is, the bigger the funds (and ETFs) will be, and the more they will drive the momentum effect.
That's not to say that the other factors you mention don't exist or are irrelevant, I just find that simple explanations like these (or the fact that large funds are not necessarily quick to make decisions even if all fundamental facts are known instantly just because of the way their investment process is structured) tend to get lost in an academic study like this even though they might play a decisive part in the effect observed.
If there was no such thing as momentum then nothing would ever change because the forces of mean reversion would collapse all motion into a static equilibrium. As it happens, change is the only ineluctable and pervasive characteristic of the universe. Hence momentum is inevitable and stands in no need of explanation.