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I am trying to see if momentum strategy has a profitability in a bond market. I have a bond dataset which is a panel data and it is monthly. It looks something like the table below.

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For each month t, I am trying to form a 10 portfolio based on their return on t-3 to t-1 period. So each month there will be 10 portfolios p1(the loser) to p10(the winner) and I am going to but the winner and sell the loser and hold it for another 3 months (t+1 to t+3) and see if this gives profit.

But I just can't think of a good approach to implement this. I think it is complicated because each month I would have different portfolios. I don't know if my explanation was clear enough but any advice?

Thanks kdk.

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  • $\begingroup$ I am trying to follow Jegadeesh & Titman(1993)'s method $\endgroup$ – kdk Mar 12 '16 at 22:17
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I assume that you can do a correct performance calculation for bonds (taking into account coupons, clean and dirty prices).

Then for each month you can do the following:

  1. extract all live (non matured, already issued) bonds from the dataset together with their performance: past performance for momentum, future performance for evaluation of the method.
  2. Calculate their momentum as you have defined it, rank the bonds, define the 10 portfolios
  3. Calculate the performance of each of the portfolios for the evaluation period

And you do the steps 1 to 3 for each rebalancing month. These are quite clear steps but of course you have to do the book-keeping of performance, ranking/portfolio membership and performance which is cumbersome.

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