Customer Weighted Momentum Factor - Based on Sales Share
factor.formula
in:
- :
Represents the customer-weighted monthly momentum factor value for supplier i.
- :
represents the number of customers of supplier i.
- :
Represents the stock return of customer j of supplier i over the past month (i.e. monthly momentum). The calculation is usually (price at the end of this month - price at the end of the previous month) / price at the end of the previous month.
- :
Represents the weight of supplier i's sales to its customer j. It is usually calculated as the ratio of customer j's sales to supplier i's total sales. This weight reflects the importance of customer j to supplier i.
factor.explanation
The stock price momentum of a client will have an impact on the stock price of its supplier, and this impact can be explained by behavioral finance theories such as investors' limited attention. Specifically, when a client's stock performs well, investors may pay more attention to the supplier related to the client, thereby pushing up the supplier's stock price; and vice versa. Therefore, by constructing a customer-weighted momentum factor, this momentum transmission effect between companies can be quantified and captured. The core idea of this strategy is to buy its supplier when the client's stock momentum performs well, and sell its supplier when the client's stock momentum performs poorly, thereby taking advantage of this price linkage to obtain excess returns.