1. Obtaining Positive Alpha in Mid-Cap U.S Equities Using Momentum Strategies!! Presentation by: J_ SCAD Asset Management  Jun Qin  Shoaib Mohammed  Chris Rudolph  Amy Parvaneh  Daniel Kuwornu

2. Agenda  Objective  Method  Results  Conclusions  Questions

3. Objective Investigate if pure momentum based strategies in mid-cap stocks can be improved with other univariate factors to increase return in portfolio management Momentum based strategies are based on the premise that recent strong or weak performance will continue into the next period. Momentum strategists look at a strong price chart, rapid earnings growth and recent positive changes in earnings growth forecast to make investment decisions based on the above premise. Which factors or in what combination will lead to higher positive alphas. Which holding periods eliminates downside risk.

4. Method  Our procedure is to find the best factors, through the best time frame, to fit each of the following momentum categories. The factors that we initially estimated to be the best were:

5. Method (Cont.)  Scenario 1: Pure momentum strategy Momentum =+,-5, Other factors =0  Scenario 2: Modified momentum strategy Momentum = +,-5, Other factors = +,-1  Scenario 3: Momentum = +5,-3, with subjective factors Other factors:3yr EPS growth, 1yr Price change, Revision Ratio, SUE, BV to Price

6. Univariate Scoring System Q1Q5 12 month total return: +5-3 3 yr EPS growth+5-5 1 yr price momentum+1-1 Revision ratio+5-3 SUE+5-3 BV to P+5-3

7. Results!

8. Results

9. Heat Map! 1991 168.2 145.4139.4144.7 129.7163.2 143.4136.6141.7 130.2 1992 119.9 115.0119.1119.5 112.7 117.3114.8 118.2 117.3 113.3 1993 132.3 123.1118.1122.2 116.1127.1 121.7118.6121.0 117.4 1994 103.2 99.697.999.9 97.5101.895.3 98.398.598.8 1995 138.5 132.2126.0125.7 123.2135.6124.4 131.1126.6127.5 1996 125.6 122.2119.0117.4 113.5122.4 121.9118.9117.5 112.1 1997127.5 127.7 123.7124.4 119.0 128.8 133.6 123.2122.7 117.5 1998 109.2 103.899.7104.3 92.8112.4 105.5101.6104.6 96.2 1999 148.5 120.5 112.0 123.6116.0 160.4 125.1118.0124.2 110.9 2000100.999.5100.7 90.2103.0 100.699.1101.4 88.5104.6 2001 93.5 97.498.5 108.3 106.0 91.8 94.199.4 101.4 100.7 200287.4 89.7 87.278.4 68.6 86.2 89.9 87.481.1 69.6 2003145.7144.3146.9 143.7154.4 144.2142.8146.2 141.3152.5 2004120.0122.0 122.3117.0 117.5119.2123.3 123.7114.8 120.1 2005 114.9 114.4109.3106.3 102.7117.8 117.1113.1108.3 105.3 1985 145.2 138.1132.4 111.5 124.8 140.2 135.9132.7 116.9 129.1 1986 131.9 125.7120.8123.6 105.5131.7 126.1123.9126.1 106.6 1987 105.1 104.996.1100.2 95.5 105.1104.0 96.3105.6 97.1 1988127.0122.1119.8 128.8115.5 126.1118.2121.2 131.9117.0 1989 141.2 133.6125.7 113.8 114.8 146.1 132.5126.6120.4 117.1 1990 95.7 90.895.189.5 83.696.4 89.291.294.0 80.5 Year 1234 512345 Equal weighted Value weighted

10. Momentum combined with other unitvariate factors will lead to higher positive alpha in a portfolio management strategy.  The main conclusion of our results is that momentum is a major contributing factor to attaining high alpha in a portfolio management strategy.  Momentum as a sole factor will achieve high returns, but not as high as when combined with other univariate factors in a portfolio management strategy.

11. Further Research  Snowball effect amongst momentum investors  Investigate different time frames for momentum  Differentiate between mid-cap versus small/large-cap stocks  Momentum strategies in emerging markets and FX

12. Any Questions???