Gulen, Huseyin, and Ralitsa Petkova (2018) document a new pattern in stock returns that they call absolute strength momentum. Stocks that have signiﬁcantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have signiﬁcantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The authors find that absolute strength momentum generates large and signiﬁcant risk-adjusted returns, outperforms the relative strength momentum strategy of Jegadeesh and Titman (1993).
In this project, our coding activities involved:
1. Processing the data: Importing from Excel files, filtering observations to keep only if it is in NYSE, NASDAQ, AMEX.
2. Handling missing and duplicate observations
3. Finding 11-month cumulative returns for each stock
4. Make breaks points from the historical distribution from 1926 to 1964, and then use a recursive window
5. Compute value-weighted returns of the decile portfolios over month t and then the portfolios are rebalanced
6. Finding various statistics for the decile portfolios including raw returns, excess returns, standard deviation, alphas from Fama and French three factors model, alphas from Fama and French five factors model, betas, and sharp ratio.
7. Finding breakpoints from relative strength momentum and creating Figure 1 in the paper
Our Stata Codes
We have developed easy to use yet robust codes. The codes need just a basic understanding of Stata. Further, our comments with each line of code will surely help you to not only apply the code but also understand the process more clearly.
The code for the above-mentioned tasks is available for $149, plus a $50 for raw data processing. If the data processing is not needed, the fee is just $149. For further details, please contact us at:
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of financial economics, 116(1), 1-22.
Fama, E. F., & French, K. R. (1996). Multifactor explanations of asset pricing anomalies. The journal of finance, 51(1), 55-84.
Gulen, Huseyin, and Ralitsa Petkova. (2018) Absolute strength: Exploring momentum in stock returns. Available at SSRN 2638004.