Why Momentum Investing Has Been Struggling—And What Volatility Has to Do With It

Key Takeaways

• Volatility spikes doubled in frequency from 2004‑2013 to 2014‑2024.
• Spike reversals now average 28 days, half of earlier periods.
• Momentum returns turn negative during spikes, -0.96% vs +0.65% otherwise.
• Faster reversals erode trend persistence, weakening momentum factor.
• Contrarian buying S&P 500 during spikes historically yields strong rebounds.

Pulse Analysis

The paper by Mozes, published in the Spring 2026 Journal of Beta Investment Strategies, provides a data‑driven narrative of how market volatility has evolved. By tracking VIX spikes against a three‑month moving average, the study shows that the past decade experienced more than three times the number of spikes seen in the previous ten years, while the average reversal time fell from 54 to 28 trading days. This acceleration mirrors the rise of high‑frequency trading, algorithmic pricing and real‑time information dissemination via social media, all of which compress the window in which fear dominates market sentiment.

For momentum investors, the implications are stark. Momentum thrives on sustained price trends; however, the new volatility regime creates rapid, sharp reversals that whipsaw long‑short positions. Across the full sample, months containing a spike or the month after delivered an average momentum return of –0.73%, compared with a positive 0.54% in tranquil months. The gap widens in the 2014‑2024 window, where momentum fell nearly 1% per month around spikes while posting modest gains otherwise. This pattern explains why the decade’s annual momentum return slipped to just 2.2%, a stark contrast to the double‑digit averages of earlier eras.

Investors can adapt by filtering momentum signals through a volatility lens. When a price decline coincides with a VIX spike, the move may reflect a fear‑driven dislocation rather than a genuine trend, suggesting a reduced exposure or a contrarian tilt. Historically, buying the S&P 500 at the onset of a spike and holding through the reversal generated strong rebounds, though outlier events in 2008 and 2020 warn of tail‑risk. Ultimately, the research signals that the market’s faster processing of shocks—while supporting higher valuations—poses a structural headwind for pure momentum strategies, urging a more nuanced, volatility‑aware approach.