Obtaining positive alpha in mid cap u s equities using momentum strategies
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Obtaining Positive Alpha in Mid-Cap U.S Equities Using Momentum Strategies!!. Presentation by: J_ SCAD Asset Management Jun Qin Shoaib Mohammed Chris Rudolph Amy Parvaneh Daniel Kuwornu. Agenda. Objective Method Results Conclusions Questions. Objective.

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Obtaining Positive Alpha in Mid-Cap U.S Equities Using Momentum Strategies!!

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Obtaining positive alpha in mid cap u s equities using momentum strategies

Obtaining Positive Alpha in Mid-Cap U.S Equities Using Momentum Strategies!!

Presentation by: J_ SCAD Asset Management

Jun Qin

Shoaib Mohammed

Chris Rudolph

Amy Parvaneh

Daniel Kuwornu


Agenda

Agenda

  • Objective

  • Method

  • Results

  • Conclusions

  • Questions


Objective

Objective

Investigate if pure momentum based strategies in mid-cap stocks can be improved with other univariate factors to increase return in portfolio management

  • Momentum based strategies are based on the premise that recent strong or weak performance will continue into the next period.

  • Momentum strategists look at a strong price chart, rapid earnings growth and recent positive changes in earnings growth forecast to make investment decisions based on the above premise.

  • Which factors or in what combination will lead to higher positive alphas.

  • Which holding periods eliminates downside risk.


Method

Method

  • Our procedure is to find the best factors, through the best time frame, to fit each of the following momentum categories. The factors that we initially estimated to be the best were:


Method cont

Method (Cont.)

  • Scenario 1: Pure momentum strategy

    Momentum =+,-5, Other factors =0

  • Scenario 2: Modified momentum strategy

    Momentum = +,-5, Other factors = +,-1

  • Scenario 3: Momentum = +5,-3, with subjective factors

    Other factors:3yr EPS growth, 1yr Price change, Revision Ratio, SUE, BV to Price


Univariate scoring system

Univariate Scoring System

Q1Q5

12 month total return: +5-3

3 yr EPS growth+5-5

1 yr price momentum+1-1

Revision ratio+5-3

SUE+5-3

BV to P+5-3


Results

Results!


Results1

Results


Heat map

Equal weighted

Value weighted

Year

1

2

3

4

5

1

2

3

4

5

145.2

111.5

140.2

116.9

1985

138.1

132.4

124.8

135.9

132.7

129.1

131.9

105.5

131.7

106.6

1986

125.7

120.8

123.6

126.1

123.9

126.1

105.1

95.5

96.3

105.6

1987

104.9

96.1

100.2

105.1

104.0

97.1

128.8

115.5

131.9

117.0

1988

127.0

122.1

119.8

126.1

118.2

121.2

141.2

113.8

146.1

117.1

1989

133.6

125.7

114.8

132.5

126.6

120.4

95.7

83.6

96.4

80.5

1990

90.8

95.1

89.5

89.2

91.2

94.0

168.2

129.7

163.2

130.2

1991

145.4

139.4

144.7

143.4

136.6

141.7

119.9

112.7

118.2

113.3

1992

115.0

119.1

119.5

117.3

114.8

117.3

132.3

116.1

127.1

117.4

1993

123.1

118.1

122.2

121.7

118.6

121.0

103.2

97.5

101.8

95.3

1994

99.6

97.9

99.9

98.3

98.5

98.8

138.5

123.2

135.6

124.4

1995

132.2

126.0

125.7

131.1

126.6

127.5

125.6

113.5

122.4

112.1

1996

122.2

119.0

117.4

121.9

118.9

117.5

127.7

119.0

133.6

117.5

1997

127.5

123.7

124.4

128.8

123.2

122.7

109.2

92.8

112.4

96.2

1998

103.8

99.7

104.3

105.5

101.6

104.6

148.5

112.0

160.4

110.9

1999

120.5

123.6

116.0

125.1

118.0

124.2

90.2

103.0

88.5

104.6

2000

100.9

99.5

100.7

100.6

99.1

101.4

93.5

108.3

91.8

101.4

2001

97.4

98.5

106.0

94.1

99.4

100.7

89.7

68.6

89.9

69.6

2002

87.4

87.2

78.4

86.2

87.4

81.1

143.7

154.4

141.3

152.5

2003

145.7

144.3

146.9

144.2

142.8

146.2

122.3

117.0

123.7

114.8

2004

120.0

122.0

117.5

119.2

123.3

120.1

114.9

102.7

117.8

105.3

2005

114.4

109.3

106.3

117.1

113.1

108.3

Heat Map!


Obtaining positive alpha in mid cap u s equities using momentum strategies

Momentum combined with other unitvariate factors will lead to higher positive alpha in a portfolio management strategy.

  • The main conclusion of our results is that momentum is a major contributing factor to attaining high alpha in a portfolio management strategy.

  • Momentum as a sole factor will achieve high returns, but not as high as when combined with other univariate factors in a portfolio management strategy.


Further research

Further Research

  • Snowball effect amongst momentum investors

  • Investigate different time frames for momentum

  • Differentiate between mid-cap versus small/large-cap stocks

  • Momentum strategies in emerging markets and FX


Obtaining positive alpha in mid cap u s equities using momentum strategies

Any Questions???


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