Comments on: Momentum in the S&P 500 http://alephblog.com/2008/12/05/momentum-in-the-sp-500/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 18:05:33 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Independenthttp://alephblog.com/2008/12/05/momentum-in-the-sp-500/comment-page-1/#comment-20293 Independent Fri, 05 Dec 2008 19:33:10 +0000 http://alephblog.com/?p=1213#comment-20293 David, I did something similar several years ago with individual stocks from the Telechart universe of about 7000 stocks, and found that BOTH the largest future gains and losses were in the most extreme deciles—10% and 90%. In other words, the largest historical gainers had many large future winners and many large future losers at the same time, as did the worst historical losers. This is consistent with both the momentum and turnaround strategies. You might throw in an interaction into the analysis since the effect of one variable seems to be different across levels of the other variable. You can do so by creating an interaction variable equal to the product of the historical yearly return X monthly return. David, I did something similar several years ago with individual stocks from the Telechart universe of about 7000 stocks, and found that BOTH the largest future gains and losses were in the most extreme deciles—10% and 90%. In other words, the largest historical gainers had many large future winners and many large future losers at the same time, as did the worst historical losers. This is consistent with both the momentum and turnaround strategies.

You might throw in an interaction into the analysis since the effect of one variable seems to be different across levels of the other variable. You can do so by creating an interaction variable equal to the product of the historical yearly return X monthly return.

]]> By: Markushttp://alephblog.com/2008/12/05/momentum-in-the-sp-500/comment-page-1/#comment-20292 Markus Fri, 05 Dec 2008 16:06:35 +0000 http://alephblog.com/?p=1213#comment-20292 Hello David, there is a lot of literature out there that supports your theory regarding momentum strategies applied to stock and commodity markets, e.g.Jagadeesh/Titman http://papers.ssrn.com/sol3/papers.cfm?abstract_id=299107. We simulated a momentum strategy on S&P500 stocks that did exceptionally well since 1991 and outperformed the S&P by sharp ratio, MDD and returns but nevertheless had by far its worst drawdown in the last three months. Hello David,
there is a lot of literature out there that supports your theory regarding momentum strategies applied to stock and commodity markets, e.g.Jagadeesh/Titman http://papers.ssrn.com/sol3/papers.cfm?abstract_id=299107.
We simulated a momentum strategy on S&P500 stocks that did exceptionally well since 1991 and outperformed the S&P by sharp ratio, MDD and returns but nevertheless had by far its worst drawdown in the last three months.

]]> By: matt_swansojeikerhttp://alephblog.com/2008/12/05/momentum-in-the-sp-500/comment-page-1/#comment-20291 matt_swansojeiker Fri, 05 Dec 2008 15:45:11 +0000 http://alephblog.com/?p=1213#comment-20291 Thanks, David. Very good food for thought. What could happen in the next year if we see a dramatic reversal in the flight-to-quality / liquidity trade currently on? In the event of a dollar collapse, might the nominal return on the S&P be positive y-o-y but the real return something altogether worse? The image in my head right now is one of obese bankers frantically piling one on top of the other into a safe house named "treasuries" only to have the floor collapse beneath them due to sheer weight..... Thanks, David. Very good food for thought.

What could happen in the next year if we see a dramatic reversal in the flight-to-quality / liquidity trade currently on? In the event of a dollar collapse, might the nominal return on the S&P be positive y-o-y but the real return something altogether worse?

The image in my head right now is one of obese bankers frantically piling one on top of the other into a safe house named “treasuries” only to have the floor collapse beneath them due to sheer weight…..

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