Median momentum

The median is a better measure of a sample's central tendency in the presence of extreme observations. We propose an alternative momentum strategy formed by buying (shorting) stocks with high (low) average median returns over a formation period of 3–12 months. The median momentum strategy outperforms the traditional price momentum strategy for all holding periods from 1 month to 5 years, with no long-term reversal. This same return pattern is observed for all G7 countries. Further analysis indicates that median momentum profitability is an underreaction-only phenomenon and shows behavioral patterns related to short-sale restrictions and investor sentiment.