The momentum effect is a widely-documented phenomenon in finance. One of the first studies to document this effect was written by Jegadeesh and Titman (JF, . This set of Python code is written based on the original SAS code that replicates the Jegadeesh and Titman (JF, ) momentum strategy. Please refer to the. This paper evaluates various explanations for the profitability of momentum strat- egies documented in Jegadeesh and Titman (). The evidence indicates.
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In Jegadeesh and Titman, and the papers that follow it, the monthly return to the strategy for the month of March is found by averaging the monthly return for Tranche 1 in March, the avg return for Tranche 2 in March and the monthly return for Tranche 3 in March. It is a while since I looked at this, so this is not a definite answer.
Is this the proper way to calculate the Returns of a Momentum Strategy? It was a short sale and the returns are due to falling stock prices. Post as a guest Name.
Quick Link to the paper Unfortunately the Method is poorly described: I want to duplicate their results. But IIRC the method used in the paper is what you call vertical aggregation by month. This continues every Month.
You donlt want to use geometric averaging over 3 months, which will artificially decrease monthly volatility. I work with discrete monthly Returns. Home Questions Tags Users Unanswered. Or just tktman composite Portfolio Return in March? As shown in the diagram Tranche 1 consists of those stocks bought momentkm the end of December and held in Jan, Feb, Mar and so on for the other tranches.
I really would appreciate if you could check you notes!
But i dont get why we use Buy minus Sell here to measure the return of the strategy. But I can also calculate the Return of the composite Portfolio vertical aggregation for the month Momentym. Sign up using Email and Password. Also other people here may have inputs in the meantime Email Required, but never shown.
It’s acutally a return as well. Sign up using Facebook. I want to implement a Momentum Strategy, followed by Jegadeesh and Titman with overlapping Portfolios.
Momentum Strategy Jegadeesh and Titman – Statalist
Do you know why it is like that? Did you calculate the effective geometric rate of the 3 Month composite Portfolio, consisting the equally weighted Sub-Portfolios, Return? This method is simple, though perhaps not completely realistic or not to everybody’s taste other methods of calculation are also possible. Thank you very much so far. Or do I just calculate composite Portfolio Returns? For every Month I sum momentuk these two observations and take the Mean.
So I think, considering your answer, that every Month i should just have the Returns of the Composite Portfolio, isn’t it?
I will check my notes later today and get back to you. This is the first observation of my Strategy. But I don’t know which returns I have to calculate to implement my Momentum Strategy properly. In March, I calculate the Return of Tranche 1.
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