Journal of Technical Analysis - Market Technicians Association

52
Performance of 12,1 Style Index Momentum Portfolios
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
for comparison. As predicted by style index momentum, the 12,1 portfolio performance increases monotonically with prior 12 month performance. The Long-Short
12,1 portfolio has an annualized return of 9.25% and a Beta estimate of -0.01. The top 12,1 also outperforms all of the Russell style indexes and other indexes on
return, Sharpe ratio, Treynor ratio, and Jensen’s alpha.
More importantly, on a risk-adjusted basis the six ranked 12,1 portfolios improve monotonically with prior 12 month performance. The Sharpe ratio, Treynor
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
basis as well.
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
monthly alpha of 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
with p-values < 1%. The Long-Short portfolio produced a monthly alpha of 0.45% (5.56% annualized) which was statistically significant at the 5% level. These
results again provide evidence of momentum in style indexes even after controlling for market, size, and book-to-market factors.
Jo u r n a l of Technical Analysis • 2008 • Issue 65