Asset Class Short-term Momentum Over the Long Run

Do assets other than individual stocks exhibit a short-term (1-month) reversal effect? In their February 2019 paper entitled “Short-Term Momentum (Almost) Everywhere”, Adam Zaremba, Andreas Karathanasopoulos and Huaigang Long investigate short-term return predictability within long run global samples spanning five asset classes: equity indexes, government bonds, treasury bills, commodity futures and currencies. Each month they sort assets by class or overall into fifths (quintiles) on prior-month return. For classes with at least 10 assets available, they then construct long-short hedge portfolios that are long (short) the equal-weighted quintile of assets with the highest (lowest) prior-month returns. Using monthly returns for 45 equity indexes, 54 government bonds, 52 government bills, 48 commodity futures and 62 currency exchange rates in U.S. dollars as available during 1800 through 2018, they find that: (more…)