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IB9520 Research Methodology – Individual Assignment: Empirical Project
The objective of the project is to help students to learn how to gather, clean, analyse and present data; formulate
a hypothesis; interpret results; and gain other transferable skills for their dissertations. An important aspect of this
exercise is the economic interpretation of results and their discussion in the context of the strengths and
weaknesses of the tests themselves. The quality of the interpretation is as important as the empirical analysis and
the results. Please keep in mind that this task is all open-ended: there is no guarantee that you end up having
similar empirical results compared to what have been documented previously. As long as you are certain about
your analysis, there is no point wasting time replicating the existing results. Just proceed with your findings and
try to interpret them by relating them to the concepts covered in class.
There are three research topics provided and you must choose ONLY ONE topic to write a report.
You must stick to the following guidelines:
1. Word count: the report should not exceed the word limit of 1,500 (excluding figures, tables, and
references). This is a strict limit and the module leader may deduct marks if you have exceeded the
word limit.
2. Format: the report should have the proper format of academic research paper by including abstract,
introduction, literature review, methodology, results, conclusion, and references.
3. Computer code: you do not need to include the code you have compiled.
4. Figures and tables: it is recommended to convert figures & tables into images when you include in
your report. Figures and tables must be reported in a proper way entailing the title and descriptions.
5. Marking criteria: Marks based on overall quality of the report for the following four aspects:
a) Comprehension: ability to have a solid grasp of literature and methodologies
b) Analysis: ability to apply the proper empirical methods and produce the accurate results
c) Critical Evaluation: ability to reflect and appraise on the results
d) Academic Writing: ability to present ideas and arguments fluent and well
6. Mark distribution: 70+ (Distinction), 60+ (Merit), 50+ (Pass), <50 (Fail)
7. Submission: only a report in pdf formats
8. E-mail queries: only queries for clarification will be addressed. As this assignment is fairly open-
ended, much is up to students’ discretion.
Topic 1. Momentum Effect
Background: a growing body of literature documents evidence of stock return predictability based on
a variety of firm-specific variables. Among these anomalies, the price momentum effect is probably the
most difficult to explain within the context of the traditional risk-based asset pricing paradigm. In an
influential paper, DeBondt and Thaler (1985) document that past losers over three- to five-year periods
outperform past winners over the subsequent three to five years. Jegadeesh and Titman (1993)
document that U.S. stocks that perform the best (worst) over a three- to 12-month period tend to
continue to perform well (poorly) over the subsequent three to 12 months. In a follow-up study,
Jegadeesh and Titman (2001) show that momentum strategies remained profitable in the nineties; a
period subsequent to the sample period in Jegadeesh and Titman (1993).
Research Objective: examine whether the momentum effect in stock returns still exists, discuss the
potential source of momentum profits, and evaluate whether it is a market anomaly.