Currently, the earliest starting year of empirical, security-level studies is 1925 – the year the CRSP dataset began.
However, the first two American stocks traded hands as early as 1792 in New York City. Over the following decades, the stock market developed rapidly.
The 19th and early 20th century were filled with expansions, recessions, wars, panics, manias and crashes, all providing a rich out-of-sample history for empirical studies which have been constructed using the post-1925 data. The U.S. market had been active for 132 years before the CRSP data began, providing an opportunity to extend numerous stock-level studies to earlier history.
Our stock price dataset combines three known 19th and early 20th century data sources from 1800 to 1927:
The International Center of Finance at Yale (ICF); The Inter-University Consortium for Political and Social Research (ICPSR); The Global Financial Data (GFD).
Between 1800 and 1925, the combined dataset contains an average of 268 securities per month, making it robust for security level studies. After 1925, the Center for Research in Security Prices database is used (CRSP).
Price Momentum Definition
The first study that we choose to extend with the new data is the Price Momentum strategy.
Momentum is defined as the stock’s price change from t – 12 to t – 2, skipping the reversal effect. For every month of the back test, each stock is assigned to one of three portfolios based on its price momentum. Stocks with the highest momentum are assigned to the Top Third (T) portfolio and stocks with the lowest momentum are assigned to the Bottom Third (B) portfolio. The Long-Short portfolio goes long the Top Third and short the Bottom Third portfolios. The Universe portfolio takes an average of all available stock returns during each month.
The portfolios are re-balanced monthly, enabling us to compute the one-month forward equally weighted return. All returns are price only returns, excluding dividends. Excess returns are derived by subtracting the equally weighted universe return from the portfolio return. Returns to this strategy are observed between February 1, 1801 and December 31, 2012.
Download Momentum Paper
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