Asset allocation with time series momentum and reversal
He, Xue-Zhong; Li, Kai; Li, Youwei
Professor Youwei Li Youwei.Li@hull.ac.uk
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.
|Journal Article Type||Article|
|Publication Date||Jun 1, 2018|
|Journal||Journal of Economic Dynamics and Control|
|Peer Reviewed||Peer Reviewed|
|APA6 Citation||He, X., 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|
|Keywords||Economics and Econometrics; Control and Optimization; Applied Mathematics|
|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.|
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