I identify simple proxies for uncertainty and attempt to determine if the returns to a momentum strategy vary with these proxies. The proxies identified include the stock’s daily 6-month historical return volatility, the magnitude of alpha in a 6-month historical regression of the stock’s daily returns on the Fama-French factors and the (1-R2) value of the regression. The exposures to each of the risk factors were also tested as possible proxies for uncertainty related to the factors.
Using daily stock return data from CRSP from 1926 to 2006, stocks are first sorted into quintiles based on these proxies. A momentum strategy is pursued in each uncertainty quintile by taking long and short positions in the deciles with the highest and lowest past returns respectively over a 6 month ranking period, and holding these positions for a further 6 months. It was found that with greater volatility, momentum returns are higher. Similarly, as the magnitude of alphas rises, momentum returns increase. These results support the hypothesis that greater uncertainty contributes to momentum. Finally, momentum returns are higher with larger exposures to the market factor, but show no statistically significant trends with the size and book-to-market factors. When (1-R2) values increase however, momentum returns decline, in contradiction with the hypothesis that greater uncertainty contributes to momentum.
Stocks were also sorted into industry groups according to Kenneth French’s twelve industry portfolio classification. The industries were ranked according to the volatility of their daily returns and the returns to a momentum strategy within the industry. There was no clear relationship between the volatility of daily returns and momentum returns of the twelve industry portfolios.
|Advisor:||Chua, Choong Tze|
|School:||Singapore Management University (Singapore)|
|Department:||Lee Kong Chian School of Business|
|School Location:||Republic of Singapore|
|Source:||MAI 48/06M, Masters Abstracts International|
|Keywords:||Growth stocks, Numerical analysis, Profit, Rate of return, Stock exchanges, Surplus value|
Copyright in each Dissertation and Thesis is retained by the author. All Rights Reserved
The supplemental file or files you are about to download were provided to ProQuest by the author as part of a
dissertation or thesis. The supplemental files are provided "AS IS" without warranty. ProQuest is not responsible for the
content, format or impact on the supplemental file(s) on our system. in some cases, the file type may be unknown or
may be a .exe file. We recommend caution as you open such files.
Copyright of the original materials contained in the supplemental file is retained by the author and your access to the
supplemental files is subject to the ProQuest Terms and Conditions of use.
Depending on the size of the file(s) you are downloading, the system may take some time to download them. Please be