Adam Bain and the Price Momentum Strategy
ADAM BAIN AND THE PRICE MOMENTUM STRATEGY
In February 1995, Adam Bain, investment advisor in the London, Ontario branch of RBC Dominion Securities Inc. (RBC DS), was considering whether or not to implement a price momentum strategy for his clients. Trend and Cycle, DS’s technical research department, had recently circulated a copy of a study which described a simple price momentum model and referred to its “startling results” based on back testing the strategy over a 15 year period. The Trend and Cycle group had long promoted the importance of price momentum and relative strength to potential clients. Bain needs to determine whether the proposed model was “too good to be true” or, if it did not look promising, how he would go about implementing such a strategy for his clients.
RBC Dominion Securities Inc.
RBC DS had its roots in an investment firm established in 1901. In 1987, Dominion Securities was acquired by Canada’s largest financial institution, the Royal Bank of Canada. RBC DS was a fill service international investment bank with headquarters in Toronto, London and New York, with offices in more than 150 locations including Boston, Hong Kong, Paris and Tokyo. RBC DS currently operated in over 80 offices across Canada, employed 900 investment advisors, and serviced over 300,000 individual clients.
A RBC DS brochure described the firm’s objectives as follows:
Our constant objective is developing and maintaining the highest degree of client confidence. The confidence earned by providing clients with: timely, accurate financial information; reasoned appropriate investment strategies; conservative, investment grade financial products; the unfailing, rigid control of our safekeeping and segregation procedures for securities over which we have custody; and our effective, hands-on executive, operations and control management structure.
Trend and Cycle Department
The Trend and Cycle department had provided proprietary quantitative analysis tools for
In February 1995, Adam Bain, investment advisor in the London, Ontario branch of RBC Dominion Securities Inc. (RBC DS), was considering whether or not to implement a price momentum strategy for his clients. Trend and Cycle, DS’s technical research department, had recently circulated a copy of a study which described a simple price momentum model and referred to its “startling results” based on back testing the strategy over a 15 year period. The Trend and Cycle group had long promoted the importance of price momentum and relative strength to potential clients. Bain needs to determine whether the proposed model was “too good to be true” or, if it did not look promising, how he would go about implementing such a strategy for his clients.
RBC Dominion Securities Inc.
RBC DS had its roots in an investment firm established in 1901. In 1987, Dominion Securities was acquired by Canada’s largest financial institution, the Royal Bank of Canada. RBC DS was a fill service international investment bank with headquarters in Toronto, London and New York, with offices in more than 150 locations including Boston, Hong Kong, Paris and Tokyo. RBC DS currently operated in over 80 offices across Canada, employed 900 investment advisors, and serviced over 300,000 individual clients.
A RBC DS brochure described the firm’s objectives as follows:
Our constant objective is developing and maintaining the highest degree of client confidence. The confidence earned by providing clients with: timely, accurate financial information; reasoned appropriate investment strategies; conservative, investment grade financial products; the unfailing, rigid control of our safekeeping and segregation procedures for securities over which we have custody; and our effective, hands-on executive, operations and control management structure.
Trend and Cycle Department
The Trend and Cycle department had provided proprietary quantitative analysis tools for