The Anatomy of a Stock Market Winner Revisited: An Empirical Analysis

Herman Hovde Krogdahl & Stian Svarve Wibstad

Student thesis: Master thesis


The purpose of this thesis is to assess if the trading strategies created by Reinganum (1988) still outperform the S&P 500, and to test whether the same methodology of investigating shared characteristics among winner stocks is effective for creating a trading strategy in the time period 2000- 2019 on the U.S. stock market. This thesis singles out stocks with a rapid price appreciation and analyses their shared fundamental and technical attributes. The analysis identifies several distinct features among the stock market winners, which are utilized to form the basis of an investment strategy. Previous research of stock market winners has mainly focused on how to identify stocks expected to rise significantly over longer time periods, while research addressing shorter term price acceleration is limited. Reinganum (1988) presented two strategies, consisting of nine and four investment screens. This thesis finds that the four-screen strategy still outperforms the S&P 500 in terms of average excess cumulative holding period return over two years, while the limited number of stocks meeting all nine filter rules makes the nine-screen strategy essentially impossible to implement. Following the same methodology as Reinganum (1988), this thesis identifies six new investment screens through analyzing common attributes among a random sample of stocks that at least doubled in price within one calendar year. Based on Reinganum’s (1988) four-screen strategy and this thesis’ constructed six-screen strategy, equalweighted and value-weighted portfolios are created to examine how the strategies would have performed when backtested on historical data from 2000-2019. This thesis finds that Reinganum’s (1988) fourscreen strategy outperforms the market in terms of both cumulative holding period and risk adjusted returns, where the equal-weighted portfolio is the better investment. The constructed six-screen strategy outperforms Reinganum’s (1988) four-screen strategy when equal-weighted but underperforms when value-weighted. The results are consistent before and after adjusting for transaction costs. Neither of the portfolios generate consistent abnormal returns when taking into consideration the exposure to well-known risk factors. However, the equal-weighted six-screen portfolio produces statistically significant alphas in both the overall period and the sub-period from 2000-2009. This might indicate that the strategy captures more stocks that outperform in 2000-2009 compared to 2010-2019, suggesting that the attributes of what is considered a stock market winner is changing with the dynamics of the stock market

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2021
Number of pages175