John M. Griffin
Empirical Methods in
Finance
Assignment #5: Due October 2,
10:30.
Portfolios are essential to finance and accounting research.
Form 10 equally-weighted momentum portfolios. Carefully follow
details laid out in Jegadeesh and Titman (2001, Journal of Finance). Your Table
should look similar to their table 1. Yes, follow their same details. You will
need to pull the monthly return and market value data for all stocks from CRSP
using WRDS, you may need other pieces of information like Price (see JT). It is
strongly encouraged that you use SAS, STATA or as package that makes handling
this data easy as you will need to use similar data for your next test.
Hint: until you make
sure your program works don't run it on the whole CRSP database, just use a
subset, so your not waiting on your program to run... Nor clogging up the
servers.
- Show your Table 1 that
is equivalent to Table 1 in Jegadeesh and Titman (01). This Table should
have two Panels, Panel A with the same period as their period and a Panel B
which has the results up until December ? Hint: If you can't replicate
their Table you've done something wrong and you won't be able to know your
right going forward.
a) What has happened to momentum profits
over the last 5 year?
b) Explain what is happening in January?
c) Does this change the inference obtained in Jegadeesh and Titman (01)?
- Now
rank (proc Rank) your firms according to 4 groups of market capitalization and
present momentum profits within each group. The results should look just as in
Panel B (of Table 1) except now there are four sets of portfolios. Call this
Table II
- Form a value-weighted
portfolio similar to this and call it Table III. When forming value-weighted
portfolios you can create value-weighted portfolios in SAS with the weight
being the market capitalizations.
- 1/2 of Credit: Now find
a paper published since 2001 (but not Chordia and Shivadumar 2002) that
proports to explain momentum. Evaluate the factor(s) ability to explain
momentum portfolio returns.