Momentum trading, buying winning assets and selling losing assets, is a most popular trading strategy. It relies on sluggish market adjustment, allowing the trader to follow best-informed investors before the more inert part of the market does. Herding simply means that market participants imitate each others’ actions. Herding accelerates and potentially exaggerates market adjustments. The more quickly the herd moves, the harder it becomes to follow informed leaders profitably. In a large agile herd, sluggish adjustment gives way to frequent overreaction. Momentum strategies fail. This suggests that popularity and commoditization of momentum strategies (and trend-following) are ultimately self-defying. Conditioning momentum strategies on the estimated degree of herding should produce superior investment returns.

Investor Myopia and the Momentum Premium across International Equity Markets
Paul Docherty, Gareth Hurst
Journal of Financial and Quantitative Analysis Volume 53, Issue 6, December 2018
Myopic investors focus on short-run price changes rather than long-term fundamental value, resulting in an overweighting of public information and a slow diffusion of fundamental news. Such processing of information can produce price drifts similar to those seen in behavioral models of momentum. We explore the impact of myopia over an international sample, finding that momentum is stronger in more myopic countries, and this relationship is magnified where the proportion of funds under delegated management is high. We therefore argue that investor myopia, which arises due to agency issues in delegated funds management, is an important determinant of momentum.