does momentum matter ? using daily returns to create trading strategies for internet stocks

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Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks BA 453 - International Investments The Fuqua School of Business Presented by: Juan Pablo de Miguel Matthias Hoffmann Bernardo Martinez Sergio Penchas Will Walker

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Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks. BA 453 - International Investments The Fuqua School of Business. Presented by: Juan Pablo de Miguel Matthias Hoffmann Bernardo Martinez Sergio Penchas Will Walker. - PowerPoint PPT Presentation

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Page 1: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Does Momentum Matter ?Using Daily Returns to Create Trading

Strategies for Internet Stocks

BA 453 - International Investments

The Fuqua School of Business

Presented by: Juan Pablo de Miguel Matthias Hoffmann Bernardo Martinez Sergio Penchas Will Walker

Page 2: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Introduction

• Sample: 9/17/97 - 12/31/00

• Data: daily returns of up to 143 internet stocks

• Portfolio Selection based on last day’s top 10

performers and bottom 10 performers

• Transaction costs: nominal fee and bid-ask spread

Page 3: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Assumptions

• Commission Fee: $6 / trade

• Bid / Ask Spread: 0.30%

• Portfolio Size: $50 million

• Turnover buy/hold equal-weighted

portfolio: 10%

Page 4: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Number of Stocks in the Sample

-

20

40

60

80

100

120

140

160

Page 5: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Portfolios

• Buy Top Performers

• Buy Bottom Performers

• Sell Top Performers

• Sell Bottom Performers

• Momentum (Buy Top / Sell Bottom)

• Contrarian (Sell Top / Buy Bottom)

• Benchmark (Equal-Weighted Buy / Hold)

Page 6: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Results

0.00

2.00

4.00

6.00

8.00

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12.00

14.00

16.00

18.00

Val

ue

of

1 d

oll

ar i

nve

sted

Buy Top

Sell Bottom

Momentum Portfolio

Benchmark

Contrarian

Sell Top

Buy Bottom

Page 7: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Portfolio Turnovers

0

5

10

15

20

25

30

35

40

45

50

Nu

mb

er

of

Sto

cks T

rad

ed

Top Portfolio

Bottom Portfolio

Top + Bottom Portfolio

Benchmark

Portfolio Top Bottom Top + Bottom Benchmark

Average 8.17 8.27 16.44 0.57 STD 1.28 1.27 1.96 2.74 Min 4.00 4.00 10.00 - Max 10.00 10.00 20.00 44.00

Page 8: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Best Strategy: Buy Bottom 10

0.00

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10.00

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14.00

16.00

18.00

Val

ue

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1 d

oll

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Benchmark

Buy Bottom

Page 9: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Summary Results

Portfolio Buy Top Sell Bottom Momentum Benchmark Contrarian Sell Top Buy Bottom

Betas 1.19 (0.95) 0.24 1.00 (0.24) (1.19) 0.96Average 0.17% -1.02% -0.85% 0.37% -0.14% -0.66% 0.53%

STD 4.18% 3.56% 4.47% 2.53% 4.47% 4.17% 3.56%Min -16.06% -16.89% -19.10% -12.79% -28.24% -33.59% -13.76%Max 33.23% 13.22% 27.40% 11.28% 18.02% 15.76% 16.29%# 1 7 1 0 3 5 4 7# 2 3 2 1 8 5 4 4# 3 5 2 4 5 1 2 8# 4 1 1 6 7 7 1 4# 5 3 8 3 4 3 4 2# 6 6 6 5 0 5 4 1# 7 2 7 8 0 1 8 1

Page 10: Does Momentum Matter ? Using Daily Returns to Create Trading Strategies for Internet Stocks

Q&A ???