Time Series Momentum
Yao Hua Ooi
Lasse H. Pedersen
We document significant "time series momentum" in equity index, currency, commodity,
and bond futures for
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.
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
Moskowitz thanks the Initiative on Global Markets at the University of Chicago Booth School
of Business and CRSP for financial support.