{"id":55484,"date":"2020-08-14T09:33:00","date_gmt":"2020-08-14T13:33:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=55484"},"modified":"2022-11-21T09:46:06","modified_gmt":"2022-11-21T14:46:06","slug":"cross-asset-signals-and-time-series-momentum","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/cross-asset-signals-and-time-series-momentum\/","title":{"rendered":"Cross-Asset Signals and Time-Series Momentum"},"content":{"rendered":"\n

The post “Cross-Asset Signals and Time-Series Momentum” first appeared on Alpha Architect Blog<\/a>.<\/em><\/p>\n\n\n\n

In their paper \u201cTime Series Momentum<\/a>,\u201d published in the May 2012 issue of the Journal of Financial Economics, Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen documented significant time-series momentum (trend) in equity index, currency, commodity and bond futures\u2014delivering substantial abnormal returns with little exposure to standard asset pricing factors and performing best during extreme markets. AQR Capital Management\u2019s Brian Hurst, Yao Hua Ooi and Lasse Pedersen updated that earlier work in their June 2017 paper \u201cA Century of Evidence on Trend-Following Investing<\/a>.\u201d Their evidence documented that time-series momentum had not only been persistent across time and economic regimes, as well as pervasive around the globe and across asset classes, but also robust to various definitions.<\/p>\n\n\n\n

Aleksi Pitk\u00e4j\u00e4rvi, Matti Suominen, and Lauri Vaittinen contribute to the literature on time-series momentum with the February 2019 study \u201cCross-Asset Signals and Time Series Momentum<\/a>.\u201d Building on the work from the aforementioned papers, the authors documented a related cross-asset phenomenon in bond and equity markets they called \u201ccross-asset time-series momentum.\u201d For a strategy buying an equity index, they required positive excess returns from both stock and bond markets. If not, the strategy moved to cash. For a strategy trading a bond index, they required a positive excess return from the bond market and a negative excess return from the equity market. If the excess returns of the asset and the cross-asset predictor disagreed, they held the risk-free asset. Their data sample covered bond and equity market indices from 20 leading developed countries. The earliest return series started in January 1980, and it all ended in December 2016. All local currency index returns were converted into U.S. dollar indexes.<\/p>\n\n\n\n

The following is a summary of their findings:<\/p>\n\n\n\n