Momentum investing follows the adage: the trend is your friend or let your winners run. Momentum risk factors are designed to go long assets that have performed well while going short assets with poor performance over a certain period.

The premise of strategies relying on this factor is that asset prices exhibit a trend, reflected in positive serial correlations. Such price momentum would defy the hypothesis of efficient markets which states that past price returns alone cannot predict future performance. Despite theoretical arguments to the contrary, price momentum strategies have produced positive returns across asset classes and are an important part of many trading strategies.