October 2016
Beginner
208 pages
5h 25m
English
Content preview from Quantitative Momentum
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
CHAPTER 8Quantitative Momentum Beats the Market
“… we slavishly follow the model. You do whatever it says no matter how smart or dumb you think it is.”
– Jim Simons, Renaissance Technologies1
The components and knowledge required to understand the quantitative momentum system are outlined in Chapters 5 through 7. In Chapter 5, we outline the generic relative strength momentum indicator commonly used in academic research. Generic momentum is a starting point in the quantitative momentum system. We calculate the generic momentum measure as the total return (including dividends) of a stock over some particular look-back period (e.g., the past 12 months) and skip the most recent month. We calculate this measure for all stocks in our investment universe.
The next aspect of the quantitative momentum system relates to how we differentiate among generic momentum stocks. If you recall, in Chapter 6 we speak to the evidence on two aspects of investor behavior: (1) a preference for lottery-like assets and (2) limited attention. We first show the evidence that stocks with large short-term “spikes” in performance generally underperform. This underperformance is the result of mispricing caused by biased investors who overpay for lottery-like stock characteristics. Next, we examine the so-called frog-in-the-pan momentum algorithm (FIP), which attempts to quantify the path of a high momentum stock. The calculation for the measure is described as follows:
The FIP measure looks at the past 252 ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.