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Asset allocation with time series momentum and reversal

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

Authors

Xue-Zhong He

Kai Li



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.

Journal Article Type Article
Publication Date Jun 1, 2018
Journal Journal of Economic Dynamics and Control
Print ISSN 0165-1889
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 91
Pages 441-457
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
DOI https://doi.org/10.1016/j.jedc.2018.02.004
Keywords Economics and Econometrics; Control and Optimization; Applied Mathematics
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.
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