3-month momentum is a technical factor. It involves buying stocks with positive momentum over a 3 month time period. Momentum or technical indicators leverage behavioural finance. Investors succumb to ‘herd bias’ which cause stocks to be over or under sold. A positive momentum could indicate that a stock will continue to rise while a negative momentum could indicate its continued downtrend. While the value factor is a convergence to fair value, momentum can be thought of as a divergence from fair value.
To calculate a stocks 3 month momentum, we divide the current price by the closing price 3 months previous.