Documente Academic
Documente Profesional
Documente Cultură
Momentum Portfolios
Attaullah Shah
Email: attaullah.shah@imsciences.edu.pk
Working Paper
June, 2018
Abstract
2. Program Requirements
The program written for momentum portfolio strategy is named as asm. asm
has the following three requirements.
• Stock returns named as ri
• Market returns named as rm
• Data set already declared as panel data, with the command xtset
If market returns are not needed, they can be omitted from the data set.
The underlined letters show that this is the minimum that the user will have to write
to invoke a specific option.
The first # after asm is to specify the number of formation periods, while the second #
is to specify the number of holding periods. For example,
asm 3 6
7. Results Directory
asm saves results to a new directory each time it is run. The directory is made in the
user’s current directory with name structure of “Results – F# - T# - Current date current
time”. However, if the director option is used, the results will be saved to the user’s
specified directory. For example;
asm 3 6, results directory(Test1)
It will use up to 3 periods of formation and up to 6 periods of holding. The option
results tells the program that one sample t-test should be applied on the holding
period momentum portfolio returns. The options directory tells the program to make a
separate directory for momentum files and any other results file in the user’s current
directory with the name “Test1 current date_time”.
Similarly, LT# refers to loser stocks returns using # number of holding periods. For
example, for one period of formation, we have the next period i.e. period 2 for holding.
Immediately after ranking of stocks on the basis of one period formation, the equally
weighted returns of bottom 10% stocks (based on the ranking in period 1) in the
holding periods are recorded in variable LT1. Similarly, using one period formation
and two periods of holding, the first holding period be available is from period 3. This
way, the variable LT2 records returns of bottom 10% stocks in the holding period that
are two periods away from the formation period.
And finally, WML# refers to the LT# minus WT# i.e. return of winner stocks minus
returns of losers stocks.
Table 1: Holding period returns using one formation and four holding
periods
date WT1 LT1 WML1 WT2 LT2 WML2 WT3 LT3 WML3
1960m1
1960m2 0.016705 0.029236 -0.01253
1960m3 0.003381 -0.03921 0.042594 -0.04387 0.017505 -0.06137
1960m4 0.039224 -0.0128 0.05202 0.022803 -0.00248 0.025279 -0.00643 0.023637 -0.03007
1960m5 0.009822 -0.01022 0.020042 0.090786 -0.01649 0.10728 0.021073 0.002225 0.018849
1960m6 -0.09871 -0.18403 0.085317 -0.11556 -0.17509 0.059534 -0.12851 -0.19679 0.068281
1960m7 -0.03534 0.004865 -0.04021 -0.03031 0.014989 -0.0453 -0.03507 0.023387 -0.05846
1960m8 -0.05672 -0.02388 -0.03284 -0.02278 -0.07614 0.053362 -0.06324 -0.05961 -0.00363
The Missing Rows
In constructing formation period portfolios, we lose periods for which holding
period returns cannot be obtained. In one period formation-holding portfolios,
we lose the first period in forming the portfolio and hence the number of
holding periods available for portfolio construction are N – (NF + NH) - 1, where
N is the total number of periods available, NF refer to the number of formation
periods, and NH refers to number of testing periods. In Table 1, we use a total
of 10 periods, so for one period formation, we have a total of 9 holding periods
available. The first period is lost in formation. Similarly, for one period
formation and two periods holding (reported under WT2, LT2, WML2 columns),
we have 8 periods available for holding, that is, first periods is lost in formation
and the last period cannot be used for both formation and holding, hence
period number 10 is also lost. The same goes for other combinations.
Program Download
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