Reinganum's Trading Strategies Revisited: Structuring Profitable Strategies Based on Updated Filters
Managerial Finance, 2009
Posted: 29 Dec 2008 Last revised: 11 Jan 2011
Date Written: September 8, 2008
Using data from 1970 to 1983, Reinganum (1988) develops a profitable trading strategy based on four (or nine) variables to select stocks. We first show why it is increasingly difficult to implement his original trading strategy. Then we test his strategy on 23 additional years of data through 2006, and compare it to similar strategies that incorporate straightforward modifications to his filters. We further extend the analysis to a long short trading strategy similar to that of Chan, Jegadeesh, and Lakonishok (1996). Using the Capital Asset Pricing Model, Fama-French''s three-factor model and Carhart''s four-factor model to evaluate returns following portfolio formation, we find significant and consistent alphas and portfolio sizes.
Keywords: Market Efficiency, Trading Strategies, Market Anomalies
JEL Classification: G14
Suggested Citation: Suggested Citation