TimeSeriesMomentum - Time Series Momentum Tobias Moskowitz...

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Time Series Momentum Tobias Moskowitz Yao Hua Ooi Lasse H. Pedersen 1 August, 2010 Abstract We document significant "time series momentum" in equity index, currency, commodity, and bond futures for each of the 58 liquid instruments we consider. We find persistence in returns for 1 to 12 months that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction. A diversified portfolio of time series momentum strategies across all asset classes delivers substantial abnormal returns with little exposure to standard asset pricing factors, and performs best during extreme markets. We show that the returns to time series momentum are closely linked to the trading activities of speculators and hedgers, where speculators appear to profit from it at the expense of hedgers. 1 Moskowitz is at the University of Chicago, Booth School of Business and NBER, Ooi is at AQR Capital Management, and Pedersen is at NYU, NBER, and CEPR. We thank Cliff Asness, Nick Barberis, Gene Fama, John Heaton, Brian Hurst, John Liew, Matt Richardson, Richard Thaler, Robert Vishny, Robert Whitelaw, and Jeff Wurgler for useful discussions, and Ari Levine and Haibo Lu for excellent research assistance. Moskowitz thanks the Initiative on Global Markets at the University of Chicago Booth School of Business and CRSP for financial support.
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1. Introduction: A Trending Walk Down Wall Street We document an asset pricing anomaly we term "time series momentum," which is remarkably consistent across very different asset classes and markets. Specifically, we find strong positive predictability from a security’s own past returns for a large set (almost five dozen) of diverse futures and forward contracts that include country equity indices, currencies, commodities, and sovereign bonds over more than 25 years of data. We find that the past 12 month excess return of each instrument is a positive predictor of its future return. This time series momentum or “trend” effect persists for about a year and then partially reverses over longer horizons. These findings are robust across a number of sub-samples, look-back periods, and holding periods. In fact, 12-month time series momentum profits are positive not just on average across these assets, but for every asset contract we examine (58 in total). Time series momentum is related to, but different from, the phenomenon known as "momentum" in the literature, which is cross-sectional in nature. The momentum literature focuses on the relative performance of securities in the cross-section , finding that securities that recently outperformed their peers (over the past 3 to 12 months) continue to outperform their peers on average over the next month (up to a year). 2 Rather than focusing on the relative returns of securities in the cross-section, time series momentum focuses purely on a security’s own past return.
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TimeSeriesMomentum - Time Series Momentum Tobias Moskowitz...

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