So, you can find all the data bases on this site. More explicitly, I would like to take the "Developed Market Factors and Returns" part. Even more explicitly, let us take the "25 Portfolios Formed on Size and Momentum (5 x 5)" part (my questions are based on this specific data base).
By clicking on "details", we have the explanation on the construction of the data base:
All returns are in U.S. dollars, include dividends and capital gains,
and are not continuously compounded. We sort stocks in a region into
five market cap and five lagged momentum return groups at the end of
each month t.
The size breakpoints for a region are the 3rd, 7th, 13th, and 25th
percentiles of the region's aggregate market capitalization. For
portfolios formed at the end of month t–1, the lagged momentum return
is a stock's cumulative return for t–12 to t–2. The momentum
breakpoints for all stocks in a region are the 20th, 40th, 60th, and
80th percentiles of the lagged momentum return for big (top 90% of
market cap) stocks of the region.
The global portfolios use global size breaks, but we use the momentum
breakpoints for each region to allocate the region's stocks to the
global portfolios. Similarly, the global ex us portfolios use global
ex us size breaks and regional momentum breakpoints. The 25
value-weight size-momentum portfolios for a region are the
intersections of the independent 5x5 size and momentum sorts.
So my question is that I don't understand how they explain the construction of the database and I am looking for a better (and maybe with "easier" words) explanation. I am not a practitioner in the domain and this words seems to be "logic" for them... but not for me.
what does "The size breakpoints for a region are the 3rd, 7th, 13th, and 25th percentiles of the region's aggregate market capitalization" mean?
"The momentum breakpoints for all stocks in a region are the 20th, 40th, 60th, and 80th percentiles of the lagged momentum return for big (top 90% of market cap) stocks of the region." what does that mean?
"The global portfolios use global size breaks, but we use the momentum breakpoints for each region to allocate the region's stocks to the global portfolios. Similarly, the global ex us portfolios use global ex us size breaks and regional momentum breakpoints. The 25 value-weight size-momentum portfolios for a region are the intersections of the independent 5x5 size and momentum sorts." Well, same what does that mean?
And finally (cherry on the cake), I would like to use this data base to simulate some momentum strategies. However the "size" factor is not really part of my study. Should I use only 1 of the 25 columns (let's say the neutral one) although the stocks might change from small to big and from low to high at any year? if not, which column(s) should I use? The last sub question can be summed up like that:
- What would you suggest to use this data base if you wanted to simulate
a momentum strategy?
