Asset allocation with time series momentum and reversal

He, Xue-Zhong; Li, Kai; Li, Youwei

Abstract

To capture the well documented time series momentum and reversal in asset price, we develop a continuous-time asset price model, derive the optimal investment strategy theoretically, and test the strategy empirically. We show that, by combining market fundamentals and timing opportunity with respect to market trend and volatility, the optimal strategy based on time series momentum of moving averages over short-time horizons and reversal significantly outperforms, both in-sample and out-of-sample, the S&P 500 and pure strategies based on either time series momentum or reversal only. The results are robust for different time horizons, short-sale constraints, market states, investor sentiment, and market volatility.

Citation

He, X.-Z., Li, K., & Li, Y. (2018). Asset allocation with time series momentum and reversal. Journal of Economic Dynamics and Control, 91, 441-457. https://doi.org/10.1016/j.jedc.2018.02.004

• Journal Article Type: Article
• Acceptance Date: Feb 5, 2018
• Online Publication Date: Feb 15, 2018
• Publication Date: Jun 1, 2018
• Deposit Date: Oct 11, 2018
• Journal: Journal of Economic Dynamics and Control
• Print ISSN: 0165-1889
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 91
• Pages: 441-457
• DOI: https://doi.org/10.1016/j.jedc.2018.02.004
• Keywords: Economics and Econometrics; Control and Optimization; Applied Mathematics
• Public URL: https://hull-repository.worktribe.com/output/1113504
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165188918300733?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Asset allocation with time series momentum and reversal; Journal Title: Journal of Economic Dynamics and Control; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jedc.2018.02.004; Content Type: article; Copyright: © 2018 Elsevier B.V. All rights reserved.