monotonically until it reaches 12.17 percent at the end of month 12. From
month 13 to month 60 the momentum profits are on average negative. By
the end of month 60 the cumulative momentum profit declines to −.44 per-
cent. Most of the reversals are observed four to five years after portfolio
formation.
The robustness of long-horizon return reversals can be evaluated by ex-
amining the performance of momentum portfolios in two separate time pe-
riods, the 1965 to 1981 and 1982 to 1998 subperiods. In addition to being
the halfway point, 1981 represents somewhat of a break point for the Fama
and French factor returns. The Fama-French SMB and HML factors have
higher returns in the pre-1981 period than in the post-1981 period. The av-
erage SMB and HML factors returns in the pre-1981 period are .53 percent
and .48 percent per month and in the post-1981 period are −.18 percent
and .33 percent per month, respectively. Since the momentum portfolios
have significant exposures to these factors (see table 10.4), the factor re-
lated reversals would be larger in the pre-1981 period than in the post-
1981 period.
The evidence indicates that the momentum strategy is significantly prof-
itable in the first twelve months following the formation date both of these
subperiods, and the profits are of a similar magnitude. The returns in the
MOMENTUM 373
Figure 10.2. This figure presents cumulative momentum portfolio returns with a
sample of stocks traded on the NYSE, AMEX or NASDAQ. The sample comprises
all stocks that are larger than the smallest NYSE market cap decile at the beginning
of the event period. Stocks priced less that $5 at the beginning of each event month
are excluded from the sample. See Table 10.1 for a description of momentum port-
folio construction. Source: Jegadeesh and Titman (2001a).