Typically, academic research that discuss momentum tide over the difficulty involved in shorting stocks. In India, you can only short stocks through SLBS in quantities that are multiples of the lot-size. And only those stocks that are allowed in the F&O segment can be borrowed for selling short. In order to overcome these constraints, we restricted our universe of stocks to only those that have been in the F&O segment since Jan 2004. There are grand total of 97 stocks that fit this criteria.<\/p>\n
The biggest problem with choosing such a restricted universe is survivorship bias. One can argue that the stocks that survived from 2004 through 2015 and<\/em> had enough liquidity to be listed in F&O would have stronger long-term momentum than those that do not. If this is true, then it doesn’t make sense going short. We will see if this hypothesis is confirmed in our back-test.<\/p>\n Typically, momentum strategies are run using a one-year look-back period. We wanted to check what kind of impact shorter look-back periods had on overall returns. The following results are for going long (equally weighted) the top 5 stocks in our universe at the beginning of every month and holding it for one month.<\/p>\n The red<\/span> line is the one-year look-back momentum; black is 100-day look-back momentum; and green<\/span> is buy & hold Nifty<\/small> By year:<\/p>\n You would think that shorting “weak” stocks should give returns comparable to going long “strong” stocks. But that doesn’t seem to be the case. The short-portfolio was always a drag on performance and made returns more volatile.<\/p>\n A long-only momentum strategy with a one-year look-back beat the pants out of both the Nifty and the long-short strategy. This could be because the pool of stocks in F&O show strong survivorship bias. We will continue to investigate if the short portfolio can be made more efficient. Stay tuned!<\/p>\n","protected":false},"excerpt":{"rendered":" Introduction Momentum effects are one of the premier anomalies in the market and we have been running an equity long-only momentum strategy since 2013 with returns of +64.44% vs. Nifty’s +27.25% so far. Given the success of long-only equity momentum, we were curious as to how a long-short version of it would perform in India … <\/p>\n","protected":false},"author":2,"featured_media":2023061,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[3491,2761],"class_list":["post-2023031","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","category-your-money","tag-momentum","tag-quant","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2023031","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2023031"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2023031\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2023061"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2023031"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2023031"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2023031"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Long-only Momentum<\/h3>\n
\n![\"long-only-momentum.2005-2010\"](\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2015\/05\/long-only-momentum.2005-2010.png\")
<\/p>\n![\"long-only-momentum.2011-2014\"](\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2015\/05\/long-only-momentum.2011-2014.png\")
<\/p>\n![\"long-only-momentum\"](\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2015\/05\/long-only-momentum.png\")
<\/p>\nLong-short Momentum<\/h3>\n
![\"long-short-momentum.2005-2010\"](\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2015\/05\/long-short-momentum.2005-2010.png\")
<\/p>\n![\"long-short-momentum.2011-2014\"](\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2015\/05\/long-short-momentum.2011-2014.png\")
<\/p>\nConclusion<\/h3>\n