Why Momentum Investing May Be Less About Psychology Than Plumbing

A new study argues momentum profits stem less from investor psychology than from predictable month-end liquidity pressures.

For three decades, momentum investing has occupied a strange position in finance. It is among the most persistent and profitable anomalies ever documented, yet also among the least satisfactorily explained. Traditional theories attribute momentum to investor underreaction, behavioural biases or compensation for hidden risks. But a new paper suggests the explanation may be considerably more mechanical — and far less elegant.