Industry Leader Momentum Premium
factor.formula
Define leaders and followers:
Calculate the average return of leaders and followers:
Calculate the industry leader momentum premium factor:
in:
- :
Represents a specific industry.
- :
The cumulative transaction amount ratio threshold is used to distinguish the leading stocks from the follower stocks in the industry. For example, $\lambda=60%$ means that the 60% of stocks with the highest cumulative transaction amount are selected as the leaders.
- :
The set of leading stocks in industry $i$.
- :
The set of follower stocks in industry $i$.
- :
The number of leading stocks in industry $i$.
- :
The number of follower stocks in industry $i$.
- :
The return of the leader stock $j$ in the period $t-n$ to $t$.
- :
The return of follower stock $k$ in the period $t-n$ to $t$.
- :
The average return of the leading stocks in industry $i$ over the past $n$ trading days (from $t-n$ to $t$). For example, $n=20$ means using data from the past 20 trading days.
- :
The average return of the follower stocks of industry $i$ in the past $n$ trading days (from $t-n$ to $t$). For example, $n=20$ means using the data of the past 20 trading days.
- :
The leader momentum premium factor of industry $i$ reflects the difference in returns between the leader stocks and the follower stocks in the industry.
factor.explanation
This factor is calculated based on the transaction amount and return rate of stocks in the industry, and aims to quantify the difference in momentum effect within the industry. Specifically, we first sort the stocks in the industry by transaction amount, and select stocks with a certain proportion of cumulative transaction amount (determined by $\lambda$) as leader stocks. Then, calculate the average return rate of the leader stocks and the remaining follower stocks over the past period of time (for example, 20 trading days). Finally, by calculating the average return rate of the leader stocks minus the average return rate of the follower stocks, we get the industry leader momentum premium factor. This factor aims to capture the excess return momentum of the leader stocks in the industry relative to the follower stocks. The logic behind this factor is that within the industry, the leader stocks tend to have stronger market attention and capital inflows, and therefore may show a stronger momentum effect. The test results show that industry leader stocks may show a sustained momentum effect, while follower stocks may show a certain degree of reversal effect.