In a previous post, we highlighted an article that showed how useful accounting numbers are. In this post, we will present a concrete example of an application of accounting numbers in portfolio management. Reference [1] showed that the Price-to-Earnings ratio is a mean-reverting process, and it can be accurately estimated by AR(1), an econometric model. Earnings, on the other hand, follow a trend process and can be modeled by a first-order integrated process with a constant factor that captures relative earnings growth. I propose a model of expected returns by decomposing stock price into two constituents: earnings and price-to-earnings (PE) ratio. The PE ratio is a mean-reverting process that can be forecasted for short to medium horizons. On the other hand, earnings follow a trend process and can be characterized by a first-order integrated process. Growth in earnings is responsible for the growth of stock prices, but the cyclical nature of the PE process imparts time-series predictability to prices. After calibrating the models, the author constructed a long-only investment strategy that switches between stocks and bonds. Using the expected return model, I propose a portfolio switching strategy where investor switches between stocks and bonds based on current expected returns on market-wide stock index and risk-free government bond yields. My strategy provides better risk-adjusted returns by avoiding equity investments in periods of low expected returns. The strategy is suitable for retail investors because it only involves market-wide stock index and bond yield. Moreover, my strategy does not require short-selling of stocks which can be difficult for retail investors. In short, accounting numbers can be used in econometric models in order to develop an asset allocation strategy that offers better risk-adjusted returns. The article showed that Earnings and Price-to-Earnings ratio have practical and useful applications. In our opinion, revenue and revenue growth are also important accounting numbers that can be used effectively in portfolio management. References [1] N. Vidhani, Return Predictability using Price-to-Earnings Ratio, 2021, https://ssrn.com/abstract=3910641 Article Source Here: Using an Autoregressive Model to Predict the Price-to-Earnings Ratio and Develop an Investment Strategy
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What are Mortgage-Backed Securities?Mortgage-backed securities (MBS) are financial instruments that have similar characteristics as bonds. These securities use mortgages or a collection of mortgages as collateral. Like other financial instruments, MBS also gets traded in the market. Mortgage-backed securities are a type of asset-backed securities and allow investors to deal in mortgages. Through these, investors can invest in mortgages, which is usually not possible otherwise. Through mortgage-backed securities, investors get the right to receive the value of a group of mortgages. However, they also undertake the risks associated with those mortgages. MBSs also provide financial institutions with an advantage to raise more capital to invest in mortgages. Financial institutions providing these securities bundle various mortgages together through the process of securitization. Securitization serves as a base for mortgage-backed securities or asset-backed securities. This process allows issuers to market their illiquid assets or securities to investors. It also provides them with the opportunity to raise more capital and alleviate their credit risk. The accounting for mortgage-backed securities is similar to financial instruments based on securitization. What is the accounting for Mortgage-Backed Securities?When accounting for mortgage-backed securities, buyers treat it like any other financial instrument. The accounting treatment for mortgage-backed securities differs between IFRS and GAAP. IFRS accounting treatment for Mortgage-Backed SecuritiesWhen a reporting entity acquires MBS, it must treat it as an investment. Under IFRS, buyers must ensure the securities meet two tests. The business model test relates to the objective of holding these securities. The cash flows' characteristics test looks at whether the cash flows from the security include payments of interest and principal amounts. Mortgage-backed securities meet both of these tests. IFRS 9 requires reporting entities to treat these securities under the amortized cost model. Initially, reporting entities must recognize these securities at fair value plus transaction cost. Therefore, the accounting entries for the initial recognition will be as follows. Dr Mortgage-backed securities Cr Cash/Bank Subsequently, reporting entities must account for these securities under amortized cost. This method will include recording any interest and principal payments received from the instruments. Any interest received from mortgage-backed securities will be considered income for the reporting entity. The accounting treatment for interest from these securities will be as follows. Dr Bank/Cash Cr Interest Income Any principal repayments will be similar. However, they will not be an income but rather a reduction in the value of the mortgage-backed security on the balance sheet. If these securities do not match the tests outlined by IFRS, reporting entities must treat them under the fair value model. GAAP accounting treatment for Mortgage-Backed SecuritiesUnder GAAP, reporting entities must report mortgage-backed securities at the current value rather than historical cost. However, establishing a fair value for MBS is challenging due to the absence of observable inputs. Therefore, mortgage-backed securities fall into the Level 3 categorization of assets established by FASB 157. Level 3 assets are the least marked to market of the categories. Therefore, reporting entities must base their measurements on models and unobservable inputs. This process can increase the volatility of the current value between two reporting periods. Therefore, GAAP requires reporting entities to reconcile the opening and closing balances for level 3 assets. On top of that, there is a more stringent disclosure requirement for these assets. ConclusionMortgage-backed securities are securities that include a mortgage or a collection of mortgages as collateral. These securities are a variation of asset-backed securities. They use securitization as a basis. The accounting for mortgage-backed securities under IFRS requires entities to record it at amortized cost. However, it may also allow for fair value measurement. Under GAAP, these securities are a level 3 asset and are recognized at fair value. Post Source Here: Accounting for Mortgage-Backed Securities The conventional investment categories, i.e., stocks, bonds, and cash, can provide high returns. However, piling these up can be highly risky for investors. Therefore, some investors usually go beyond these investment categories to diversify their portfolios. However, they may lose some benefits that these investments provide, such as liquidity. For that, investors may look into liquid alternatives. However, it is crucial to understand what alternative investments are first. What are Alternative Investments?Alternative investments are assets that do not fall into the conventional investment categories. Therefore, these include investments that are not stocks, bonds, or cash. Instead, alternative investments may consist of private equity, real estate, commodities, etc. However, these investments are more suitable for wealthy investors rather than normal ones. Alternative investments provide investors with a great opportunity to diversify their portfolios. They aren't a part of conventional categories and, therefore, can decrease the risks that investors undertake. However, alternative investments do not get traded frequently on the market. For that reason, investors consider them to be illiquid. However, liquid alternatives change that. What are Liquid Alternatives?Liquid alternatives, or liquid alts, are alternative investments that are liquid. These may include mutual or exchange-traded funds. Usually, liquid alternatives provide the same benefits that most other categories of alternative investments do. However, they also have a higher trading frequency, meaning investors can buy and sell them easily. Therefore, they are more liquid. Liquid alternatives also provide other benefits to investors. Usually, these investments require lower capital than typical investments. Similarly, they are more widely available to investors of all categories. Some alternative investments may only be available to wealthy or accredited investors. However, the same does not apply to liquid alts. How do Liquid Alternatives work?Liquid alts provide investors with alternatives to conventional investment categories. However, they also focus on allowing investors to acquire liquid investments. The primary reason for that includes the frequency with which these investments get traded. While not at the same level as conventional investment categories, this frequency is high enough to allow investors to invest without restrictions. As mentioned, liquid alts include hedge or mutual funds. These funds may employ various investment techniques that differ from other funds. For example, fund managers may use long/short investing, derivatives, leverage, etc., to maximize the returns they generate for investors. However, they will still focus on providing investors with diversification and liquid investments. What are the drawbacks of Liquid Alternatives?Liquid alternatives provide features such as diversification or liquidity. However, they also come with some drawbacks. These investments usually offer lower returns compared to conventional investment categories. This drawback also relates to alternative investments. Furthermore, hedge funds may limit the period for which investors can withdraw or deposit their money. This limit may be counterintuitive to the liquidity these investments offer. Similarly, liquid alternative funds usually charge higher fees compared to others. It may not be ideal for investors looking for inexpensive alternative investments. Some funds may also include investments in non-liquid assets, which counteracts the advantages investors can get. Lastly, the demand for liquid alts has increased over the years, which has resulted in slowed market growth. ConclusionAlternative investments allow investors to choose from investments beyond the conventional categories. However, they are not as liquid, which can be a drawback. Liquid alternatives are alternative investments that allow investors to counteract that problem. These investments get traded more frequently and are, therefore, more liquid. However, that has some drawbacks. Article Source Here: What are Liquid Alternatives What are Credit Default Swaps?A credit default swap (CDS) is a financial instrument that allows investors to exchange their credit risk with another party. It is a type of swap, which is a financial derivative. Credit default swaps require one party to acquire a CDS from another party. It ensures that the seller will reimburse the lender in case the borrower defaults. Credit default swaps are common credit derivatives. Usually, insurance companies, banks, or hedge funds provide these swaps. In exchange for these instruments, these parties collect a premium from the buyer, usually each quarter. This way, both parties get to benefit from the transaction. Credit default swaps are financial instruments, more specifically financial derivatives. They can help parties hedge their risks by swapping them. Therefore, they are also hedge instruments. The accounting for credit default swaps falls under hedge accounting. For entities following IFRS for reporting purposes, IFRS 9 will apply. On the other hand, ASC 815 provides guidance on how to account for CDS under GAAP. What are the accounting treatments for Credit Default Swaps?As mentioned, two accounting standards provide guidance on how entities should account for credit default swaps. The treatments under both of these are as below. IFRS accounting treatment for CDSIFRS 9 provides three categories for reporting entities to report their financial assets. These include amortized cost, fair value through other comprehensive income, and fair value through profit or loss. Similarly, the standard provides criteria for the first two categories. Financial assets that do not fall under these categories will fall under the fair value through profit or loss treatment. Credit default swaps do not match the criteria for the first two categories. Therefore, reporting entities must account for these derivatives under the fair value through the profit or loss model. Initially, entities must record these swaps at fair value. Any transaction costs under this treatment must be treated as an expense. However, entities may elect to apply hedge accounting by designating the CDS as a hedging instrument in an eligible hedging relationship. Under the fair value through profit or loss treatment, entities must remeasure the fair value of the CDS at each reporting date. Any differences in the fair value will become a part of the income statement or the statement of profit or loss. In case of fair value gain, the accounting treatment will be as below. Dr Credit Default Swap Cr Profit or Loss In case of a loss, the accounting entries will be as below. Dr Profit or Loss Cr Credit Default Swap GAAP accounting treatment for CDSThe accounting treatment for credit default swaps under GAAP is similar to the IFRS. ASC 815 requires reporting entities to record CDS on the balance sheet as an asset or liability. Furthermore, it entails that the entity must measure it at fair value with changes in the fair value reported in earnings. However, if the entity designates a qualifying hedge relationship, it can choose otherwise. Under this approach, the accounting treatment and entries will be similar to the IFRS. Therefore, the above double entries will also apply in this case. ConclusionCredit default swaps are financial instruments through which an entity can hedge its credit risk. Usually, there are two parties involved in the financial contract. The accounting for credit default swaps is similar under IFRS and GAAP. Both standards require reporting entities to measure any changes in the derivative’s fair value in the income statement through earnings. Article Source Here: Accounting for Credit Default Swaps Investing in stocks, bonds, cash, and other asset classes is prevalent among investors. Usually, they make these investments themselves or through investment advisors. Some investors may also pool their capital and invest it into a fund. These funds have managers that make investments on their behalf. These may include hedge funds, mutual funds, etc. Like other investments, investors can also pool their capital to invest in funds. What are Funds of Funds?Funds of funds (FOF) involve investors pooling their capital together to invest in other funds. These are multi-manager investments that include funds as their underlying investments. Conventional funds invest in various asset classes on investors' behalf. Funds of funds, on the other hand, invest in those funds. In short, these funds manage a portfolio for investors that include other funds. Funds are a type of investment for investors. Since investors can invest in funds, it is also possible for other funds to do so. Usually, funds of funds include investments in hedge funds or mutual funds. Through this process, investors can achieve better diversification compared to investing in those funds directly. Therefore, investors can reduce the risks involved with their portfolios while also getting similar results. How do Funds of Funds work?The strategy that funds of funds use may differ from one fund to another. Usually, these funds work similarly to others. They identify various investments that they believe can maximize their investors' wealth. However, these investments do not include traditional assets, i.e., stocks, bonds, cash, etc. Instead, they consist of other funds that invest in those conventional asset classes. Funds of funds also have an asset allocation strategy. Based on this strategy, they include various funds that focus on stocks, debts, or other securities. FOFs may exist as hedge funds, private equity funds, or mutual funds. These funds may include investments in both domestic and foreign markets. Usually, FOFs employ highly competent managers to get the best output. The primary objective for funds of funds is diversification. However, these funds also focus on identifying appropriate investments that can meet their investment goals. They allocate assets across a wide range of fund categories. Some FOFs may be fettered, while others are unfettered. Fettered FOFs invest in portfolios managed by a single investment company. In contrast, unfettered FOFs invest in funds outside their offerings. What are the benefits and drawbacks of Funds of Funds?Funds of funds are a great option for investors looking to invest in funds but cannot do so. Through FOFs, investors can allow qualified managers to make investments on their behalf. Similarly, they can achieve better diversification compared to investing in a single fund. Therefore, they can reduce their exposure to risk while not sacrificing a great deal on returns. However, having a qualified manager making decisions on investors’ behalf can be costly. Usually, investors have to pay higher fees when investing in funds of funds. Some managers may also take unwanted risks to increase their performance-based fees, which is not optimal for investors. Similarly, while not significant, they lose some gains compared to if they invest in funds directly. ConclusionFunds of funds are pooled funds that invest in other funds. These funds, usually structured as mutual or hedge funds, employ a professional manager to make these investments. FOFs are highly favourable investments for investors that want to reduce their risks through diversification. However, they also come with some drawbacks, as stated above. Article Source Here: How Do Funds of Funds Work What are Preference Shares?Preference shares, also known as preferred stock, are a type of stock that companies issue. Under some specific circumstances, the shares will get preferential treatment over ordinary or common shares. These circumstances may include the distribution of dividends or compensation in case the underlying company liquidates. Preference shares provide additional security for investors. However, they may come with some drawbacks. For example, most preference shares do not include a voting right. Some of these shares may also come with a fixed dividend. Based on the circumstances, it can provide higher or lower returns. Preference shares also come in various types, such as redeemable preference shares. What are Redeemable Preference Shares?Redeemable preference shares have similar characteristics as ordinary preference shares. However, they come with a redemption term that allows the issuer to redeem them at a predetermined rate or price range. In other words, the issuing company gets the right to buy back these shares at a specific price at any time. However, these shares will have a redemption period during which this clause will be applicable. Redeemable shares are more advantageous to the issuer compared to the investors. Therefore, they are less secure for investors compared to irredeemable preference shares or other types. However, investors may get a premium price at redemption. Due to the redemption clause involved, the accounting for redeemable preference shares also differs from other types of preferred shares. What is the accounting for Redeemable Preference Shares?Before understanding the accounting for redeemable preference shares, it is crucial to know how entities report irredeemable preferred stock. Irredeemable preferred stock is the opposite of redeemable preference shares. On top of that, the accounting for these shares may differ based on which stage of the process. For most of the process, both IFRS and GAAP accounting treatment for redeemable preference shares are similar. On issuanceUsually, when a company issues irredeemable preferred stocks, the accounting treatment is straightforward. The entity records the cash inflows by recognizing equity in the balance sheet. Therefore, the accounting treatment for irredeemable preference shares will be as follows. Dr Cash/Bank Cr Preference Shares (Equity) However, redeemable preference shares also include a redemption clause. Although these shares are technically equity, this clause changes them. Therefore, companies that issue redeemable preference shares must record a liability in their balance sheet. This accounting treatment differs from that of irredeemable preference shares, where the company has to record equity. Therefore, the accounting treatment for redeemable preference shares will be as follows. Dr Cash/Bank Cr Redeemable Preference Shares (Liability) Dividend paymentsAs mentioned, companies also have to pay dividends on preference shares. When it comes to irredeemable preference stocks, companies must reduce these dividends from their retained earnings. This treatment is because these shares get treated as equity. However, for redeemable preference shares, the same will not apply. Since companies treat redeemable preference shares as liability, any dividend paid to the shareholders is considered an expense. Therefore, the accounting treatment for redeemable preference shares dividends will be as follows. Dr Expense Cr Cash/Bank On redemptionWhen companies redeem their preference shares, they will need to pay a predetermined price to the shareholder. Usually, this price will include a premium that requires the issuer to pay more than the share’s face value. On redemption, the accounting entries for redeemable preference shares will be as follows. Dr Redeemable Preference Shares (Liability) Dr Premium (Expense) Cr Cash/Bank ConclusionPreference shares allow shareholders to get a preferred treatment compared to ordinary shareholders. The accounting treatment for preference shares will differ on the type of share issued. For redeemable preference shares, accounting standards require reporting entities to treat them as a liability. This treatment is similar under both IFRS and GAAP standards. Post Source Here: Accounting for Redeemable Preference Shares Volatility (or variance) risk premium is a well-known phenomenon in financial markets. Many trading strategies have been designed to exploit it. For example, we published two trading strategies that use the VIX ETF to harvest the volatility risk premium. To be more accurate, their risk drivers are
All the trading strategies designed to harvest the volatility risk premium have more or less similar risk/return characteristics. They often lead to a steady rise in equity but suffer occasional huge losses. This is not suitable for long-term investors and/or investment funds that trade less frequently. So can we still design volatility risk premium harvesting strategies that are more suitable for long-term investors? Reference [1] attempted to answer this question. It examined the following volatility risk premium strategies,
The paper elaborated, In an empirical study for the S&P 500 index options market, we analyze the performance of different strategies. We compare them to each other and to equity-based factor investing strategies. The analysis shows that variance strategies differ substantially in some aspects of risk and return, are significantly positively correlated with the market, and consistently earn premiums over the entire study period. The latter distinguishes variance strategies from other factor strategies, which have not generated premiums since the 2008 financial crisis. However, variance strategies can be hit hard by extreme stock market crashes, but also have the potential to recover quickly from these shocks. All in all, the empirical results show that variance strategies can be attractive to the long-term investor-both as an alternative and as a complement to a market investment if properly designed. In short, the authors concluded that the volatility risk premium is different from other factors, and it’s worth implementing trading strategies to harvest it. They also pointed out that the volatility risk premium factor consistently earned premiums during the study period. We note that the latter point is the reason why retail investors are attracted to selling volatility, but the price to be paid is occasional huge losses. Based on our experience, we believe that the strategies presented in the paper are not suitable for long-term investors. However, they can serve as building blocks to build trading strategies that have better risk/reward profiles. More work is required to achieve this objective, but the authors are in the right direction. References [1] J. Dorries, O. Korn, GJ. Power, How to Harvest Variance Risk Premiums for the Long-term Investor, 2021, socialsoftware.fernuni-hagen.de Originally Published Here: Long-Term Trading Strategies for Harvesting Volatility Risk Premium Companies that go through a challenging time usually have limited options when it comes to raising funds. In some cases, these companies may also go into bankruptcy. Therefore, most investors or creditors don't trust them with finance. However, these companies can still raise finance through their limited options. One of these includes distressed securities. What are Distressed Securities?Distressed securities are financial instruments that companies issue when they are going through financial distress. These securities usually include debt, for example, corporate bonds, bank debts, etc. In some cases, these may also consist of preferred shares. Distressed securities are prevalent among companies that are going through bankruptcy or are close to one. Due to the higher risks, investors usually refrain from investing in such securities. However, most companies attract investors by providing them with higher rewards. Compared to other securities, distressed securities are less liquid as well. Usually, companies offer investors high discounts to attract them into investing in these securities. Investors usually consider various factors when choosing to invest in distressed securities. The type of distressed security they get offered also plays a significant role in their decision-making. Some investors may not willingly invest in these securities. Through hedge funds, however, they may get exposed to distressed securities. What is a Distressed Securities Hedge Fund?Hedge funds are funds that use investors’ pooled funds to generate profits for them. These funds usually employ derivatives and leverage to achieve this goal. Some hedge funds also use aggressive strategies to maximize the returns they generate for investors. Therefore, distressed securities make a great investment option for these hedge funds. Hedge funds usually identify companies going through financial distress offering distressed securities. However, these funds prefer companies that they deem can recover from the ongoing circumstances. Due to the pool fund hedge funds have, they can provide significant capital to any company. For that reason, they can also get distressed funds at higher discounts. Once the companies going through financial distress recover, hedge funds sell their investments. By doing so, they can benefit from the difference between the market value for those securities and the price they paid. This process requires hedge funds to take significant risks. However, the returns they can provide their investors also increase substantially. What are the risks of Distressed Securities Hedge Funds?Distressed securities hedge funds undertake significant risks when choosing to invest in those securities. The most prominent risk, in this case, is the underlying company going bankrupt. In that case, the hedge fund risks losing all of its assets invested in the company. However, hedge funds usually mitigate this risk by not investing a large portion of their resources in a single company's distressed funds. Distressed securities hedge funds may also prioritize investing in distressed debts over equity. Distressed debt usually offers more protection to investors. However, it does not guarantee profits. In some cases, distressed debt may not provide any additional protection. For hedge funds, the decision to invest in these securities ultimately comes down to their risks and rewards. ConclusionDistressed securities are prevalent among companies that are going through financial distress. These companies usually offer securities at a higher discount to attract investors. It is one of the reasons why distressed securities hedge funds prefer these securities. However, there are some risks associated with it, as mentioned above. Article Source Here: Distressed Securities Hedge Funds What is an Embedded Derivative?An embedded derivative is a part of a financial instrument that modifies its cash flows by tying it to an underlying asset. Usually, derivatives are separate financial instruments that are independent. However, embedded derivatives are a part of a financial contract. This contract, which holds the embedded option, is known as the host contract. Embedded derivatives are a term or criteria in a host contract. Usually, these host contracts are non-derivatives. Due to the existence of the embedded derivative, they become a hybrid instrument. Usually, a particular part of the cash flows from the underlying contract depends on the embedded derivative. The accounting treatment of embedded derivatives may require the reporting entity to report the derivative separately. What is the accounting treatment of Embedded Derivatives?The accounting treatment of embedded derivatives may depend on whether the reporting entity is using IFRS or GAAP. When it comes to the IFRS accounting treatment for these derivatives, IFRS 9 Financial Instruments is applicable. On the other hand, the hedge accounting standard ASC 815 deals with the accounting treatment under GAAP. IFRS accounting treatment of Embedded DerivativesIFRS 9 contains specific requirements related to embedded derivatives. Under this standard, reporting entities have two options. Firstly, if the non-derivative host is a financial asset that comes under IFRS 9’s scope, then the entity must not separate both components for accounting purposes. Therefore, the classification criteria of the standard will apply to the financial asset as a whole. However, the entity must separate embedded derivatives from the non-derivative host if the contract meets three predefined criteria. These criteria relate to the risks of the derivative and the host contract, the derivative's terms, and whether the entity measures the hybrid contract at fair value. For transferrable embedded derivatives, IFRS 9 requires the entity to treat them as a separate financial instrument. If the first case applies, then the accounting treatment for the embedded derivative will be simple. The entity will only need to recognize a single financial instrument. Therefore, the double entries for it will be as follows. Dr Cash/Bank Cr Financial Instrument However, if the second case applies, then the accounting treatment will differ, as follows. Dr Cash/Bank Cr Financial Instrument Cr Embedded Derivative GAAP accounting treatment of Embedded DerivativesThe GAAP accounting treatment for embedded derivatives is similar to that of IFRS 9. At the acquisition date, the reporting entity must determine whether there is a need to separate the embedded derivative from the host contract. This analysis requires judgment and is an ongoing process until the entity disposes of the hybrid contract. The criteria to determine whether the bifurcation method will apply are different from IFRS. Under GAAP, the reporting entity must look at the treatment of the host contract, whether the embedded derivative can be independent of the contract and how closely it relates to the host contract. Once the reporting entity makes the decisions, the accounting entries will be similar. However, GAAP requires the entity to determine the valuation of the derivative and its host before recognizing it. ConclusionEmbedded derivatives are derivatives that exist within the host contracts. These derivatives affect the cash flows from the underlying financial instrument. The accounting treatment of embedded derivatives depends on whether entities use IFRS or GAAP. Usually, reporting entities need to determine whether they should separate the host contract from the embedded derivative. However, the criteria differ under both standards. Post Source Here: Accounting Treatment of Embedded Derivatives Momentum trading is a popular investment strategy. Loosely speaking, it consists of periodically buying groups of outperforming stocks and selling non-winning stock portfolios. We have presented studies that demonstrated the trending property of equity indices in the long term. This led to the possibility of developing profitable momentum investment strategies. However, we only focused on the US indices. The question now is: does momentum trading work in other markets? Referenced [1] reviewed momentum trading across various markets, from developing to developed countries. Specifically, This research is a literature research review that focuses on the topic of the momentum strategy in the capital market. This strategy is a trading strategy carried out by investors by buying stocks that have performed well in the hope that the performance will continue well in the future. The results of the study show that most of the capital market investors carried out a momentum strategy even though the implementation is still inconsistent. It indicates that the development of several capital markets leads to inefficient markets. After an extensive literature review, the authors concluded that momentum trading works in most markets, but with some degree of variation, Based on the description of the literature described above, it turns out that there are several variations. In general, the findings in the literature review of this study show that in various capital markets in the world, both developed and developing countries, the momentum strategy occurs. The occurrence of such momentum strategies varies widely but mostly occurs in the short-term during at least the twelve months observation and testing period. In summary, momentum is a universal phenomenon that exists in various markets, from developing to developed ones. However, developing a profitable momentum investment strategy for a particular market would require some fine-tuning, taking that market’s characteristics into account. References [1] G. Syamni, Wardhia, D.P. Sari, B. Nafis, A Review of Momentum Strategy in Capital Market, Advances in Social Science, Education and Humanities Research, volume 495, 2021 Article Source Here: Momentum Trading Strategies Across Capital Markets |
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