What is Momentum?
Momentum is an investment style that exploits the tendency of asset prices to exhibit trends.
Momentum seeks to achieve uncorrelated positive expected returns, regardless of the investment outcome in the underlying asset class (e.g. cryptocurrencies)
Why momentum works (potential explanations in academic literature):
1- Investors underreact to news and overreact to recent returns (i.e. extrapolation)
2- Prices are slow to incorporate new information
3- Certain assets have poorly anchored fair values (e.g. oil, energy)
4- Investors tend to hold losing positions and take profits early (exact opposite of momentum)