Graduation Year

2017

Date of Submission

4-2017

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Eric Hughson

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© 2017 Andrew Yeh

Abstract

Momentum investing is the process of buying stocks that have performed strongly in the past and shorting historically weak performers. Past empirical research has consistently shown momentum to generate significantly positive returns on a zero-cost strategy. We show that momentum performs well regardless of the specific time horizon used in formation and investment and motivate a one month gap between forming the portfolio and investing in it. Consistent with literature, we find momentum crashes–months where momentum’s profitability dramatically reverses–and demonstrate that momentum crashes occur across all time horizon variations in momentum. Lastly, we show that the momentum portfolio during crash months is not marked by clustering in specific industries, and that the momentum premium can- not be explained by risk from regulatory uncertainty of the financial services industry.

Comments

  • Robert Day School Prize for Best Senior Thesis in Economics and Finance

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