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Re: st: Implementing a Momentum Investment Strategy with Stata


From   schmani@gmx.de
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Implementing a Momentum Investment Strategy with Stata
Date   Tue, 06 Mar 2012 16:49:58 +0100

Dear Robson, dear Richard,

thank you very much for your input!
I haven't yet decided whose approach I am gonna follow, hence I have some more issues for clarification:

Robson:
By introducing an "identifier" variable do you mean that I need to have one variable for each time-window and hence e.g. tag the top 10 performers with a "1"? How can I achieve this when I only have 385 observations, yet the before-mentioned 1400 stocks? I'm not sure I got the intuition behind your idea. Could you kindly clarify this for me?

Richard:
I assume you meant the egenmore package from ssc, since I could not find egemore? You are right that Jegadeesh and Titman used equally weighted portfolios, this will also be the approach I follow for my study. I tried using your egen command for one sample-portfolio. Is it correct that the generated variable "portfolio" now has only 1s in it for the time period where the stock has returns?
I probably need to fully understand what you were trying to achieve with your usage of f6., l6. and f6. Could you kindly elaborate on that? I should have mentioned that I have log-returns (named: return_v#-return_v####) whose observations consist of the cumulated previous 6m returns where available.
It seems to me that the command generates a portfolio based on only one asset (ret6), not on a portfolio of several assets.

(my command looked like this: egen portfolio = xtile( return_v1377), nquantiles(10) by (date)  ) Do I have to use the whole set of data (i.e. return_v#-return_v####) instead of just one return set?

Your help is greatly appreciated, as I am quite a novice in Stata.

Best regards,

Daniel


-------- Original-Nachricht --------
> Datum: Sun, 4 Mar 2012 17:40:42 -0500
> Von: Richard Herron <richard.c.herron@gmail.com>
> An: statalist@hsphsun2.harvard.edu
> Betreff: Re: st: Implementing a Momentum Investment Strategy with Stata

> I don't think there's a need to use -rolling-. I think there are two
> main steps here. Generating the portfolios, then generating the time
> series of returns for eash of these portfolios.
> 
> I would generate the portfolios using -xtile- from the -egemore- package
> (SSC).
> 
> generate ret6 = s6.price / l6.price
> egen portfolio = xtile(ret6), nquantiles(10) by(date_ym)
> 
> where -ret6- is your holding period return and -date_ym- is the
> year-month date (say 2001m5). Now generate the portfolio holding
> period returns using collapse and time series operators.
> 
> collapse (mean) f6.ret6, by(date_ym portfolio)
> 
> You may also want to use weightings to determine portfolio weights
> (although I think Jegadeesh and Titman is all equally weighted). Now
> you can use these portfolios to generate returns to your strategy.
> HTH.
> 
> On Sun, Mar 4, 2012 at 09:20, Robson Glasscock <glasscockrc@vcu.edu>
> wrote:
> > Christopher Baum's "An Introduction to Stata Programming" discusses
> > moving-windows in Chapter 8. The -rolling- command is mentioned as
> > well as Cox and Baum's -mvsumm- and -mvcorr- programs (available from
> > SSC). Looking into these may help you think about a modified approach
> > to your problem.
> >
> > Instead of using matrices, I wonder if it would be better to generate
> > two new variables that would help you identify the top 10% of firms in
> > each window. First, generate a "window" variable that would take on a
> > value of 1 for months 1-6, 2 for months 2-7, 3 for months 3-8, etc.
> > Second, generate an "identifier" variable that tags the top 10% of
> > firms in each window. You would know exactly which firms were included
> > in each window and then it would be possible for you to calculate the
> > returns for those firms over the next six months. Or maybe clever use
> > of -rolling- is the better approach here. I'm not sure, but I hope
> > this is enough to get you started.
> >
> > best,
> > Robson Glasscock
> >
> >
> > On Sun, Mar 4, 2012 at 7:43 AM,  <schmani@gmx.de> wrote:
> >> Dear all,
> >>
> >> I am trying to implement a Momentum Strategy following
> Jegadeesh/Titman(1993): Returns to Buying Winners and Selling Losers: Implications for
> Stock Market Efficiency, JoF 48(1), pp. 65-91.
> >>
> >> I have monthly returns for ~1400 stocks for a total of 385 time periods
> and now have to proceed in the following way:
> >>
> >> 1) build cumulated returns over a formation period of 6months (I did
> that by generating new variables)
> >>
> >> 2) select the top 10% performing stocks in order to invest. This is
> done every month in order to generate so-called "overlapping" portfolios.
> >>
> >> 3) invest in those stocks for a holding period of 6 months
> >>
> >> 4) determine the average of the returns and adjust for risk
> >>
> >>
> >> For now, my approach was to generate matrices for every month t that
> consist of the cumulated returns over the previous 6 months.
> >> However I can not find an efficient way to sort these matrices while
> being able to identify which assets to invest in (this is crucial as I need
> to tell Stata somehow which assets to invest in).
> >>
> >> I am sure there is a better way to sort the cumulated returns of the
> previous 6 months in every month t while still being able to somehow "track"
> the variable name in order to invest in the corresponding stock.
> >> I hope I made myself clear, any help would be greatly appreciated!
> >>
> >> Best,
> >> Daniel
> >> --
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