Physical Momentum in the Indian Stock Market

Paper: arXiv 2302.13245

Authors: Naresh Kumar Devulapally, Tulasi Narendra Das Tripurana

Abstract

Our study focuses on determining the presence of abnormal returns for physical momentum portfolios in the context of the Indian market. The physical momentum portfolios, comprising stocks from the NSE 500, are constructed for the daily, weekly, monthly, and yearly timescales. In the aforementioned timescales, we empirically evaluate the historical returns and varied risk profiles of these portfolios for the years 2014-2021. It has been observed that the best-performing physical momentum portfolios from each of the four timescales achieved higher returns and better risk measures when compared to the benchmark NIFTY 50 portfolio. We further find that the high-frequency daily time scale exhibits the strongest reversal in the physical momentum effect, wherein the portfolio yielded a 16-fold profit over the initial investment.

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper presents an empirical analysis of physical momentum strategies across multiple timescales within the Indian stock market (NSE 500). While it offers interesting insights into daily high-frequency momentum reversals yielding strong returns, the mathematical framework is relatively basic, relying primarily on standard momentum metrics and backtesting heuristics.

Research Flowchart

  flowchart TD
    A[Research Goal: Evaluate Physical Momentum & Abnormal Returns in Indian Market] --> B[Data Input: NSE 500 Stocks & NIFTY 50 Benchmark 2014-2021]
    B --> C[Portfolio Construction across Daily, Weekly, Monthly & Yearly Timescales]
    C --> D[Empirical Evaluation: Calculate Historical Returns & Risk Profiles]
    D --> E[Outcome 1: Top Momentum Portfolios Outperform NIFTY 50 Benchmark]
    D --> F[Outcome 2: Daily High-Frequency Scale Shows Strongest Reversal 16x Profit]