Python Machine Learning Blueprints - Second Edition

So, what exactly is a momentum strategy?

There are a number of variations on the theme, but the basic idea is that stocks are ranked from the highest to lowest according to their return over a prior period. The top-ranked performers are bought and held for a period of time, and then the process is repeated after a fixed holding period. A typical long-only momentum strategy might involve buying the top 25 performing stocks in the S&P 500 over the past year, holding them for a year, selling them, and then repeating the process.

This may sound like an absurdly simple strategy, and it is, but it has consistently returned results that defy expectation. But why? As you can imagine, a lot of research has examined this effect, and the hypothesis ...