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From |
Richard Herron <richard.c.herron@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Implementing a Momentum Investment Strategy with Stata |

Date |
Tue, 6 Mar 2012 14:10:37 -0500 |

You're right it is -egenmore- from SSC. The -egen, xtile- command should generate a variable -portfolio- with integers 1 through 10. When there is no return for that month -egen, xtile- won't be able to assign a portfolio. The -f6.-, -l6.-, and -s6.- are time series operators that shift forward, lag, or seasonally difference by 6 observations. Before you can use them you will need to tell Stata your panel identifiers with -tsset- or -xtset-. I don't understand your return notation. You should just have one variable that contains the n month returns for all stocks. After you -tsset- your data (something like -tsset permno date_ym-) then the code from my first reply should work. On Tue, Mar 6, 2012 at 10:49, <schmani@gmx.de> wrote: > 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 >> >> -- >> >> NEU: FreePhone 3-fach-Flat mit kostenlosem Smartphone! >> >> Jetzt informieren: http://mobile.1und1.de/?ac=OM.PW.PW003K20328T7073a >> >> * >> >> * For searches and help try: >> >> * http://www.stata.com/help.cgi?search >> >> * http://www.stata.com/support/statalist/faq >> >> * http://www.ats.ucla.edu/stat/stata/ >> > >> > * >> > * For searches and help try: >> > * http://www.stata.com/help.cgi?search >> > * http://www.stata.com/support/statalist/faq >> > * http://www.ats.ucla.edu/stat/stata/ >> >> * >> * For searches and help try: >> * http://www.stata.com/help.cgi?search >> * http://www.stata.com/support/statalist/faq >> * http://www.ats.ucla.edu/stat/stata/ > > -- > NEU: FreePhone 3-fach-Flat mit kostenlosem Smartphone! > Jetzt informieren: http://mobile.1und1.de/?ac=OM.PW.PW003K20328T7073a > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: Implementing a Momentum Investment Strategy with Stata***From:*Robson Glasscock <glasscockrc@vcu.edu>

**References**:**st: Implementing a Momentum Investment Strategy with Stata***From:*schmani@gmx.de

**Re: st: Implementing a Momentum Investment Strategy with Stata***From:*Robson Glasscock <glasscockrc@vcu.edu>

**Re: st: Implementing a Momentum Investment Strategy with Stata***From:*Richard Herron <richard.c.herron@gmail.com>

**Re: st: Implementing a Momentum Investment Strategy with Stata***From:*schmani@gmx.de

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