Testing for Trends in Trending for U.S. Stocks and Bonds

“Market Impacts of Growth in Target Date Funds” summarizes research on potential market-wide effects of periodic rebalancing actions of Target Date Funds (TDF), which trade against momentum. One piece of evidence is that monthly autocorrelation of S&P 500 Index returns is significantly negative during 2010-2019 but not during 1986-1995 or 1996-2005. Another is that TDFs accomplish most of quarterly rebalancing within the next quarter. To assess how convincing autocorrelation findings are, we calculate rolling 5-year monthly (60-month) and quarterly (20-calendar quarter) autocorrelations of returns for:

• SPDR S&P 500 ETF Trust (SPY) since January 1993 to represent the U.S. stock market.
• Fidelity Fund (FFIDX) since January 1980 to represent the U.S. stock market
• Fidelity Investment Grade Bond Fund (FBNDX) since January 1980 to represent the U.S. bond market.

Using monthly total (dividend-reinvested) returns for these three assets through October 2020, we find that: (more…)