No. of Recommendations: 1
Author: Hyperborea Date: 2/28/02 6:23 PM Number: 33895
here the momentum effect can also be the allocator's friend too. The studies that I've seen have suggested that rebalancing once a year, as you suggest, or even every other year can bring additional, though small, gains over more frequent rebalancing. The basis for this is that momentum will carry an asset class in the same direction for the following period it has been moving over the past period. The range of time that this momentum effect is valid seems to die out after about 2 years.

You can verify this yourself by computing the self-correlation of the movement of a particular index or asset class though I'm not sure if it applies to individual stocks. The self-correlation is correlation of the returns of an asset class at time t with the returns of the same asset class at time t+1 over all applicaple values of t.

Momentum is one topic that I am a little skeptical of. There are those investors who swear by it, but then, almost all of the more highly educated professors and financial experts (like Burton Malkiel, Jeremy Siegel, and William Bernstein) will say there is nothing to the momentum investing theories.

Momentum is really one of the simplest forms of technical analysis. The primary principle of technical analysis is that all information about earnings, dividends, and future performance of a company is automatically reflected in the company's past market prices. However, in Burton Malkiel's book, 'A Random Walk Down Wall Street', he skillfully attacks and destroys the concept of momentum.

Can you direct me to any books by reputable (educated) authors who can prove that there really is momentum in the stock market?

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