The Case of Momentum Investing in US Stocks - Statistics Assignment Help

Assignment Task

Proposed title of project
Factor investing: the case of momentum investing in US stocks

Proposal
The goal of the project is to work with the monthly data and techniques used to successfully manage a portfolio for momentum trading that will vary from data analysis to portfolio optimisation and risk management. Final implementation of the mathematical proofs can be done by help of data science and Python Codes.
This study tests the capital asset pricing model (CAPM ), the three-factor Fama-French model (3F-FF), Fama-French Carhart model and also for the five-factor Fama-French (5F-FF) model for USA stocks.
The study for the test of the 3F-FF model for the USA stock market will be done for longer period. The main result will show whether the 5F-FF model explains better common variation and the cross section of stock returns than other models.
I will test all the models (CAPM, 3F-FF, Fama-French Carhart model and 5F-FF model) with different market portfolios. We analyse which model portfolios capture the common variation in stock returns and can explain the cross section in returns.
Literature review on asset pricing models and applications will be given. Then data selection, variable definitions, return periods and filtering data issues are given. The study will explain the methodology to apply the models to the USA stock market. Explanatory variables and dependent variables are defined. Firstly, factors are constructed. Then, regression portfolios are constructed by sorting the stocks by their size book-to-market ratios (B/M), profitability (OP) and investment (INV). Then I will give regression portfolio statistics to see patterns in the behaviour of portfolios. Having estimated and tested factor spanning regressions, I will do testing of hypothesis of joint significance of portfolio regressions. Detailed analysis of regressions with the help of machine learning tool Python will be done and the main messages of these regressions are presented. Then the project will be concluded with the result of the study.

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