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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Quick Link to the paper Unfortunately the Timtan is poorly described: I work with discrete monthly Returns. But I don’t know which returns I have to calculate to implement my Momentum Strategy properly. My attempt would be: In March, I calculate the Return of Tranche 1.
This is the first observation of my Strategy. But I can also calculate the Return of the composite Portfolio vertical aggregation for the month March. For every Month I sum up titmn two observations and take the Mean. This continues every Month.
At the end I sum every Return of each Month up and take the mean of that to have the Monthly Returns of my actual Strategy. Is this the proper way to calculate the Returns of a Momentum Strategy?
Or do I just calculate composite Portfolio Returns? 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. As shown in the diagram Tranche 1 consists of those stocks bought at the end of December and held in Jan, Feb, Mar and so on for the other tranches.
I would really appreciate your help! It is a while since I looked at this, so this is not a definite answer. But IIRC the method used in the paper is what you call vertical aggregation by month. You donlt want to use geometric averaging over 3 months, which will artificially decrease mmoentum volatility.
I will check my notes later today and get back to you. Also other people here may have inputs in the meantime This question comes up fairly often, there may be previous answers on this site. Thank you very much so far. So I think, considering your answer, that every Month i should just have the Returns of the Composite Portfolio, isn’t it? Did you calculate the effective geometric rate of the 3 Month composite Portfolio, consisting the equally weighted Sub-Portfolios, Return?
Or just the composite Portfolio Return in March?
Momentum Strategy Jegadeesh and Titman – Statalist
I really would appreciate if you could check you notes! Somehow my sell Returns are pretty high such that i just a Buy – Sell Return of 0, But i dont get why we use Buy minus Sell here to measure the return of the strategy. It was a short sale and the returns are due to falling stock prices. It’s acutally a return as well. Do you know why it is like that? Sign up or log in Sign up using Google. Sign up using Facebook. Sign up using Email and Password.