Performance of Momentum Strategy for NIFTY 100 Stocks for the period
2011 till 2019.
By VAISSHNAVI GUNDREDDY(1st year MBA, VIT BUSINESS SCHOOL)
NITHIN
BHARGAV(1st year MBA, VIT BUSINESS SCHOOL)
Momentum strategy is an investment strategy aimed at purchasing securities that have been
showing an upward trend or short-selling securities that have been showing downward trends .1
In investing terms, it means that if the market has driven the value of a stock up for some time, it
will
continue to do so for some more time. Momentum is an example of empirical (observed)
phenomenon and is widely accepted. While empirical
research has been done on the
performance of Momentum strategy in the US market, the notable one is from Jagad eesh and
Titman. Their research paper titled “Profitability of Momentum Strategies”, published in the Journal
of Finance 1989, attributes the behavioral models that support the performance of Momentum strategies.
Our scope of the study is on the
performance of Momentum strategy in NIFTY 100 Stocks, for the period 2011-19. For this purpose, we created two hypotheses, comparing
them with the performance of the major benchmark index NIFTY50. For this purpose, we have used the ALPHABETA Guide app, invalidating the performance of the Momentum strategy.
Hypothesis 1- Testing the performance of Momentum Long portfolio, in comparison with the
performance of NIFTY
Hypothesis 2-
Testing performance of Long & Short portfolio
Methodology- Portfolios have been created based on Momentum parameters like Slope and Reliability. These portfolios have been held for a period of
26 weeks trading period. After each
trading period, two sets of
data have been captured- After trade Portfolio results and the Benchmark results. The after-trade portfolio results have been compared with Benchmark results. If the after-trade results (both in terms of Sharpe Ratio and absolute return) are greater
than the benchmark then, we have assumed that the model outperformed the benchmark for
the
selected trading period. Sharpe ratio (is defined as the difference between the returns of the
investment and the risk-free return, divided by the standard deviation of the investment.) and the
absolute return”.
In Hypothesis 1- Testing the performance of Momentum Long
portfolio, in comparison with the performance of NIFTY
1
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/momentum-investing/
We have invested only in the long position of the top quartile (4 -2) 2 and noted the results after finishing the trade. The results we got under this hypothesis.
In Hypothesis 2-
With, all
these we made nearly 33 observations for both the Hypothesis.
2 Alphabeta Guide platform has been used for creating groupings among
NIFTY 100 stocks based
For Hypothesis 1- Out of 33 observations we got positive outcomes for 25 of them. The success
rate here is 75.7%.
And for, Hypothesis 2- Out of 33 observations we got positive outcomes here for 20 observations. The success rate here is 60.6%.
Conclusion- So, with all these experiments we conclude that, Long Only Momentum Strategy
works in the Indian market and it is better to invest in the case of Hypothesis 1(long position) than investing in Hypothesis 2.
In our
next set
of analysis, we will
publish our research findings
on
the
performance
of
Momentum strategy, when the market has fallen by more than 15% in 52 weeks’ time period.
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