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Reliability and Exploitability of U.S. Stock Market Trends

June 17, 2020 • Posted in Momentum Investing

Does the U.S. stock market exhibit reliable and exploitable trends as measured by intrinsic (absolute or time series) momentum? In their April 2020 paper entitled “Time Series Momentum in the US Stock Market: Empirical Evidence and Theoretical Implications”, Valeriy Zakamulin and Javier Giner examine evidence of time series momentum in the excess returns (relative to the risk-free rate) of the S&P Composite Index. Their approach involves autocorrelations of multi-month (not monthly) excess returns. They then use simulations modeled with actual index return statistics to; (1) assess potential profitability of long-only and long-short time series momentum strategies; and, (2) estimate the optimal lookback interval. Using monthly total returns for the S&P Composite Index and the monthly risk-free rate represented by the U.S. Treasury bill (T-bill) yield during January 1857 through December 2018, they find that: (more…)

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