Absolute momentum — also called time series momentum in academic literature — measures whether an asset’s own past return is positive or negative and uses that signal to determine position. If an asset has risen over a trailing lookback period (typically 3 to 12 months), it exhibits positive absolute momentum; if it has fallen, it exhibits negative momentum. The strategy is simple: own assets that are trending up, exit or short assets that are trending down.

Absolute vs. Relative Momentum

Absolute momentum is distinct from relative momentum, which ranks assets against each other to identify leaders. Absolute momentum compares an asset only against itself — specifically against cash or a risk-free rate. An asset has positive absolute momentum when its trailing return exceeds the risk-free rate, and negative absolute momentum when it falls short. Combining both forms — selecting from relative leaders but only holding those with positive absolute momentum — is the foundation of Gary Antonacci’s Dual Momentum approach.

The Academic Foundation

The seminal work on time series momentum by Moskowitz, Ooi, and Pedersen (2012) studied 58 liquid futures markets across asset classes and found consistent positive autocorrelation in one-month to twelve-month returns. Jegadeesh and Titman (1993) had earlier documented cross-sectional momentum in U.S. equities. These findings challenged the Efficient Market Hypothesis and remained robust across markets and time periods, suggesting the pattern reflects genuine behavioral forces — specifically investor underreaction to information and the herding tendencies of institutional capital.

Why Absolute Momentum Persists

Trending behavior in markets arises from the gradual diffusion of information, feedback loops from trend-following systems, and the behavioral tendency for investors to anchor on prior prices. Central bank policy, which moves slowly and predictably, further reinforces price trends. Because many investors act only when a trend becomes undeniable, early movers capture the bulk of the move — and the trend continues until the fundamental information is fully priced in.

Practical Application in Portfolio Management

At Shell Capital, absolute momentum serves as a core signal in systematic risk management. Rather than holding assets through sustained drawdowns — as a passive buy-and-hold approach demands — our process uses trend signals to reduce or eliminate exposure when price action turns negative. This is not market timing in the pejorative sense; it is systematic loss avoidance guided by the price trend itself. The goal is to participate in rising markets while limiting exposure during prolonged declines.

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