The Effect of Momentum Strategy on the Stock Market - Based on the Linear Regression Model

Xiaonan Chen ()
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Xiaonan Chen: Scnu University, Accounting Management

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 110-119 from Springer

Abstract: Abstract With the development of the Internet and the increasing maturity of computer programming technology, the use of computer programming combined with mathematical models, which can assess the risk and return of financial markets, thus predicting the future market direction became a popular topic of interest. Quantitative finance is to fully capture the data changes in the financial market by computer and import the data into its designed mathematical model, so as to produce a series of accurate data results. Investors can make reasonable risk-return assessment based on the quantified data, making investment more rational. In this paper, people choose one of the strategies of quantitative finance, the momentum strategy, by selecting 100 stocks in the S&P 500, bringing them into the mathematical model for analysis, using parameters such as Sharpe ratio and max drawdown, and visualizing the data results to observe its overall direction with images. The results show that using the momentum strategy for the analysis, the overall trend of the stock is up and profitable, but after adding the transaction cost, the overall trend of the stock is down as the weight of the transaction cost increases, which means that it will face a large loss.

Keywords: Momentum Strategy; Linear Regression; Quantitative Finance (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-246-0_13

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