Industry Leader Momentum Difference
factor.formula
Defining industry leaders and followers:
Calculate the average return of leaders and followers:
Constructing the momentum difference factor of industry leaders:
in:
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Cumulative transaction amount percentage threshold. This parameter defines the cumulative transaction amount percentage required for stocks to be identified as industry leaders. For example, $\lambda=60%$ means that the top 60% of the stocks in terms of cumulative transaction amount are classified as industry leaders.
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The average return of industry leader stocks within a specific lookback period. The return calculation here usually adopts arithmetic average or weighted average, and the length of the lookback period should be adjusted according to market and strategy needs, such as 20 trading days.
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The average return of industry follower stocks during a specific lookback period. The calculation method is consistent with the leader return, usually using arithmetic average or weighted average, and the lookback period length should be consistent with the leader return calculation.
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The momentum difference factor of industry leaders is the difference between the average return of leader stocks and the average return of follower stocks. This value reflects the excess return of industry leaders relative to followers.
factor.explanation
This factor measures the momentum effect within the industry by examining the transaction amount and return rate of stocks in the industry. Specifically, first, the stocks in the industry are divided into leaders and followers based on the proportion of cumulative transaction amount in the past period of time (for example, 20 trading days). Generally, stocks with a high proportion of cumulative transaction amount are considered leaders, which reflects the market's attention to these stocks and the inflow of funds. Then, the average return rate of the leader and follower stocks in the same lookback period is calculated, and the difference between the two is taken to obtain the industry leader momentum difference factor. The higher the value of this factor, the higher the return rate of the leader stock is than that of the follower stock, thus reflecting the momentum effect within the industry. Empirical studies have shown that leader stocks usually show a positive momentum effect, while follower stocks may show a reversal effect, which may be related to factors such as the market funds chasing hot spots and the speed of information dissemination. This factor can be used as an important reference for identifying strong stocks in the industry and capturing the momentum effect within the industry in quantitative stock selection strategies.