Indexation of Momentum Effects

Eugene Y. Lee

Volume 1, Number 4, Fourth Quarter 2003

Momentum is now viewed as another factor of equity returns in addition to such factors 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. In this paper, I 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.