Intrinsic Momentum Investing
October 19, 2011 - Momentum Investing
Most momentum investing strategies employ cross-sectional or relative strength by taking long (short) positions in assets exhibiting medium-term price strength (weakness). Is momentum also exploitable intrinsically, wherein an investor estimates momentum of an asset relative to its own medium-term history (time series)? In their August 2010 paper entitled “Time Series Momentum”, flagged by a reader, Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen investigate time series momentum in liquid futures contracts (typically nearest or next nearest) spanning nine equity indexes, 12 currency pairs, 24 commodities and 13 government bonds. They focus on a (12-1) test strategy that each month takes a one-month long (short) position in each contract series with a higher (lower) return than Treasury bills over past 12 months. When combining different contract series into a portfolio, they weight each position to make an equal expected contribution to portfolio volatility (divide by lagged standard deviation of returns). Using daily prices for these 58 futures, Treasury bills and relevant benchmark indexes from 1985 through 2009, along with contemporaneous weekly Commitments of Traders (COT) reports as available from CFTC, they find that: Keep Reading