Return Momentum Consistency
factor.formula
Income Momentum Consistency (IDC):
in:
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It is the cumulative return of the past 12 months, excluding the return data of the most recent month. This indicator aims to capture the mid- to long-term return trend. By excluding the return data of the most recent month, the impact of short-term fluctuations can be reduced and the long-term momentum of the stock can be more clearly reflected.
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is the proportion of falling trading days in the time window used to calculate $PRET$. This indicator reflects the frequency of stock price declines during this period and is an indicator of the degree of accumulation of negative information.
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is the proportion of rising trading days in the same time window used to calculate $PRET$. This indicator reflects the frequency of stock price increases during this period and is an indicator of the degree of accumulation of positive information.
factor.explanation
The core idea of this factor comes from the phenomenon of "underreaction" in behavioral finance. The author believes that compared with a few significant stock price changes, investors tend to underreact to a series of frequent but small stock price changes. Specifically, if the cumulative return over the past period is positive ($PRET > 0$), and the proportion of falling trading days is significantly less than the proportion of rising trading days ($%neg < %pos$), it means that the stock price continues to rise and shows strong momentum; conversely ($PRET < 0$), and the proportion of falling trading days is significantly greater than the proportion of rising trading days ($%neg > %pos$), it means that the stock price continues to fall and shows strong reverse momentum. If the factor value is low (large negative value), it means that the price trend and the direction of the trading day are more consistent, investors react more obviously, there may be overbought or oversold situations, and the probability of reversal in the future may be high; conversely, if the factor value is high (large positive value), it means that the price trend and the direction of the trading day are inconsistent, which may indicate that investors underreact to the price, and there may be a momentum effect in the future. Therefore, the factor can be considered a contrarian indicator, with low factor values likely indicating a reversal and high factor values likely indicating continued momentum.