The predictive power in relative strength & CAPM.

The article presents a study which explores how the two-parameter alpha/beta model help in identifying the predictive power of price momentum. It also examines the value of computed alphas as predictors of future price performance by ranking a universe with alpha and examining subsequent price performance. The study found out that recent price momentum basis outperformed the universe by significant levels in six-month holding periods and that the significant gains come from the use of exponentially decaying weight generalized least squares. The results suggest that price momentum is useful in forecasting for issues that show extreme strength and weakness, on a properly current-beta adjusted basis.