Rank, Sign, and Momentum
Tsung-Yu Chen, Pin-Huang Chou, Kuan-Cheng Ko, S. Ghon Rhee (2021) presented evidence that momentum strategies built on the rank and sign of daily returns generate significant profits for short-term holding periods and exhibit no long-term return reversals. More importantly, they subsume traditional price momentum, but not vice versa.
Chen et al. (2021) use non-parametric measures based on ranks and signs. Let 𝑅𝑖,𝑑 denote stock i’s daily return on day d, 𝑁𝑑 denote the number of stocks on day d, and 𝑦(𝑅𝑖,𝑑) as the rank of 𝑅𝑖,𝑑 among 𝑁𝑑 stocks. The standardized rank for each trading day is expressed as follows (Wright, 2000):
The daily ranks are averaged every month and then averaged over the p-month formation period, which gives a firm’s average rank, 𝑟𝑎𝑛𝑘𝑖,t(𝑝).
Chen et al. (2021) also use calculate an alternative non-parametric measure based on signs. The sign measure is an indicator function that takes the value of 1 if stock i’s corresponding daily return 𝑅𝑖,𝑑 is positive, and 0 otherwise. They sort stocks into ten deciles based on their average ranks and construct a rank momentum (RM) strategy. An SM strategy is likewise evaluated using the average sign measure. The long-short portfolio is held for one month, six months, 12 months, one year, two years, and three years.
Our Stata Code
We have developed easy to use yet robust codes for the rank and sign momentum strategies. The codes need just a basic understanding of Stata. Further, we have added comments on each line of code to help you easily apply the code and clearly understand the process.
We can also help by modifying the codes to match different research questions and hypothesis.
The code for sign and rank momentum strategies is available for $ 198. If you are interested in the estimation of the Jagadish and Titman type momentum strategies, you can add $79 to the above. can For further details, please contact us at:
Other momentum strategies
Currently, we have codes for the following momentum strategies:
Chen, T. Y., Chou, P. H., Ko, K. C., & Rhee, S. G. (2021). Non-parametric momentum based on ranks and signs. Journal of Empirical Finance, 60, 94-109.
Wright, J. H. (2000). Alternative variance-ratio tests using ranks and signs. Journal of Business & Economic Statistics, 18(1), 1-9.
Project code: P69