Question Dailan Finance & Economics
Methodology to analyse the Momentum effect
Could you help me with the methodology and data section of my dissertation? The topic is on Momentum effect.
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Answer Internal Staff
The term Momentum effect implies that rising share prices will continue to increase further, while failing share prices will continue to decrease. Momentum investment strategies usually involve some form of technical analysis, which is known to make use of past information of share prices. Therefore, it is assumed that you will be mainly testing for weak form efficiency in the market.
The methodology for this dissertation will be primarily quantitative in nature. A common methodology used for this type of study is that of Jegadeesh and Titman’s (1993) research. Their research examines NYSE and AMEX stocks. In particular, they analyse the strength trading strategies over 3 - 12 month period (Jegadeesh and Titman, 1993). The research is based on the equal weighting of stocks, meaning that all the stocks selected for this study contributed equally in their portfolio, regardless of their individual market capitalisations.
With regards to the data collection, you will primarily only need to access share prices. This will depend on the sample size, and the country and industry you wish to examine in your dissertation. You may also consider accessing the share price of stock market index of the country where the company is operating, if you wanted to compare the results against the market. You will need to access the daily (or monthly) share prices over a certain amount of period.
An example of a similar research carried out by our researchers can be found on our UKEssays website. A weblink is provided in the references.
ReferencesJegadeesh, N. and Titman, S. (1993) Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. Journal of finance. 48 (1) 65-91
UK Essays (2013). Contrarian And Momentum Trading Evidence From South Africa Finance Essay. [online]. Available from: https://www.ukessays.com/essays/finance/contrarian-and-momentum-trading-evidence-from-south-africa-finance-essay.php?cref=1 [Accessed 9 June 2016].