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Academic audit

Failedequity XS momentum

Momentum Factor Effect In Stocks

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
free
clean panel
Gate 2
Placebo ≥ P95
not run
Eliminated here
Gate 3
Cost-aware net
RF -0.01
net-negative after costs
Failed
Worst 12-month leg (RF)-0.85
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the cost gate — the net edge turns negative once modelled costs are applied.

The classic cross-sectional momentum effect: rank stocks by their prior 12-month return (skipping the most recent month), buy the past winners and short the past losers. The 1993 Jegadeesh & Titman paper documented that this simple ranking produced abnormal returns over the following months.

What we found

In naive decile long/short form the effect does not survive our test. Plain 12-1 momentum comes out roughly flat after realistic costs and after accounting for delisted names, barely clearing zero rather than delivering the paper's premium. The risk-adjusted RF is essentially zero (-0.01) and the worst year is deeply negative (worst-year RF -0.85), consistent with the well-documented momentum-crash behaviour. The canonical decile construction is not a factor-leg we would keep; a separate consistent-momentum variant is the version that survives in our study.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • Tested on a survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Jegadeesh & Titman (1993), "Returns to Buying Winners and Selling Losers", J. Finance
Read the paper ↗
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Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.