Journal of Technical Analysis - Market Technicians Association
Journal of Technical Analysis - Market Technicians Association
Journal of Technical Analysis - Market Technicians Association
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Performance <strong>of</strong> 12,1 Style Index Momentum Portfolios<br />
Exhibit 3 reports the annualized results for six 12,1 portfolios, Long-Short 12,1 portfolio, the six Russell indexes used to build those portfolios, and other indexes<br />
for comparison. As predicted by style index momentum, the 12,1 portfolio performance increases monotonically with prior 12 month performance. The Long-Short<br />
12,1 portfolio has an annualized return <strong>of</strong> 9.25% and a Beta estimate <strong>of</strong> -0.01. The top 12,1 also outperforms all <strong>of</strong> the Russell style indexes and other indexes on<br />
return, Sharpe ratio, Treynor ratio, and Jensen’s alpha.<br />
More importantly, on a risk-adjusted basis the six ranked 12,1 portfolios improve monotonically with prior 12 month performance. The Sharpe ratio, Treynor<br />
ratio, and Jensen’s alpha all show such improvement, indicating that style index momentum not only provides excess raw returns, but excess returns on a riskadjusted<br />
basis as well.<br />
Using Fama-French 3-factor models we further analyze the top, bottom, and Long-Short 12,1 portfolio returns over the 34 year period 5 . Exhibit 4 reports a<br />
monthly alpha <strong>of</strong> 0.53% (6.60% annualized) for the top 12,1 portfolio and -0.41% (-4.81% annualized) for the bottom 12,1 portfolio, both statistically significant<br />
with p-values < 1%. The Long-Short portfolio produced a monthly alpha <strong>of</strong> 0.45% (5.56% annualized) which was statistically significant at the 5% level. These<br />
results again provide evidence <strong>of</strong> momentum in style indexes even after controlling for market, size, and book-to-market factors.<br />
Jo u r n a l <strong>of</strong> <strong>Technical</strong> <strong>Analysis</strong> • 2008 • Issue 65