Monthly Return Seasonal Momentum
factor.formula
1-Year Monthly Return Seasonal Momentum:
At the end of month t, calculate the monthly excess return of the stock in the same month of the previous year (t-12). Among them, $R_{t,m}^{excess}(t-12)$ represents the monthly excess return of the stock in t-12.
2-5 Year Monthly Return Seasonal Momentum:
At the end of month t, calculate the average of the monthly excess returns of the stock in the same month in the past 2 to 5 years (i.e., t-24, t-36, t-48, t-60). $R_{t,m}^{excess}(t-12i)$ represents the monthly excess return of the stock in month t-12i, and i is 2, 3, 4, 5.
in:
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represents the monthly excess return of the stock in month t-12i. The excess return is usually defined as the stock return minus the market benchmark return.
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Indicates the current month.
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Indicates the current calendar month (January to December).
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In the 2-5 year return seasonal momentum, i takes values of 2, 3, 4, or 5.
factor.explanation
This factor captures the monthly seasonal momentum effect of stock returns, that is, the excess returns of stocks in specific months show a certain persistence. If a stock has outperformed the market in a specific month in the past year or the past 2-5 years, it is more likely to continue to outperform the market in the same month in the future, and vice versa. This phenomenon may be due to the seasonal patterns of investor behavior, industry cycles, or macroeconomic factors at the monthly level. This factor can be used in quantitative investment strategies to construct an excess return investment portfolio by selecting stocks with strong seasonal momentum effects in specific months.