Question
Take the price of every stock in the universe on the START DATE as well as ONE WEEK prior and every multiple of ONE WEEK
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Take the price of every stock in the universe on the START DATE as well as ONE WEEK prior and every multiple of ONE WEEK thereafter (there should be one or two more weeks available so far).
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SIGNAL GENERATION. Compute all the one week returns for each name. These are the signals for our momentum strategy. Provide a table of the signals (ticker, week).
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PORTFOLIO CONSTRUCTION. Assume we go long the top quintile and short the bottom quintile. Given $2 Million of gross exposure (long and short), use signal weighting to compute the positions each week. Bonus: Note that this simple portfolio construction is not perfectly hedged. What might you suggest to improve that?
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TRADE EXECUTION. What transaction costs should we assume?
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BACKTEST. Finally, calculate the weekly returns of this strategy. Sum these to get
the total return of the strategy.
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