Time-Series vs. Cross-Sectional Momentum
There are two main kinds of momentum: comparing an asset with its own past, and comparing assets with one another. Here is how each works and how they can give different answers.
Two ways to measure momentum
| Time-series momentum | Cross-sectional momentum | |
|---|---|---|
| Question asked | Is this asset up over its own recent past? | Is this asset beating the others? |
| Typical rule | Own it if its 12-month return is positive | Own the top 10% or 20% of performers |
| Can hold all cash? | Yes, if everything is falling | No, it always ranks something on top |
| Also called | Absolute momentum or trend following | Relative momentum or relative strength |
General definitions used in research.
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