INDEXATION OF MOMENTUM EFFECTS

Eugene Y. Lee

Momentum is now viewed as another factor of equity returns in addition to factors such as beta, market capitalization, and market-to-book ratio. In this paper, I propose indexation of momentum effects to pave the way for development of the momentum-based investment products and for improved performance evaluation of the actively managed funds. I also describe a family of the Momentum Index to be created, explain how to construct the Momentum Indexes, and demonstrate historical performance of the Momentum Indexes. Finally, I discuss implications and applications of the Momentum Indexes to practical investment management.