Abstract

http://ssrn.com/abstract=2140091
 


 



Demystifying Time-Series Momentum Strategies: Volatility Estimators, Trading Rules and Pairwise Correlations


Nick Baltas


UBS Investment Bank; Queen Mary, University of London; Imperial College Business School

Robert Kosowski


Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance

January 16, 2015


Abstract:     
Motivated by the recent asset pricing literature that examines the effect of frictions on asset prices, we examine the effect of volatility estimator, trading rule choice and correlation-based leverage-adjustment on turnover and after transaction costs performance of time-series momentum strategies from 1974 until 2013. Range-based volatility estimators with desirable theoretical properties improve the performance of the strategies after transaction costs. Price trend-based momentum trading rules lead to the highest out-of-sample performance, because they significantly reduce portfolio turnover. Lastly, we explain why using a weighting scheme that incorporates correlations can improve net of transaction costs performance during the post 2008 financial crisis period.

Number of Pages in PDF File: 52

Keywords: Trend-following, Momentum, Constant-volatility, Volatility-targeting, Volatility-timing, Volatility estimation, Trading rules, Correlation, Diversification, Transaction costs, Turnover

JEL Classification: G11, G12, C13, C22


Open PDF in Browser Download This Paper

Date posted: September 2, 2012 ; Last revised: January 16, 2015

Suggested Citation

Baltas, Nick and Kosowski, Robert, Demystifying Time-Series Momentum Strategies: Volatility Estimators, Trading Rules and Pairwise Correlations (January 16, 2015). Available at SSRN: http://ssrn.com/abstract=2140091 or http://dx.doi.org/10.2139/ssrn.2140091

Contact Information

Nick Baltas (Contact Author)
UBS Investment Bank ( email )
1 Finsbury Avenue
London, EC2M 2PP
United Kingdom
+442075683072 (Phone)
Queen Mary, University of London ( email )
Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom
HOME PAGE: http://econ.qmul.ac.uk/staff/nickbaltas.html
Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom
Robert Kosowski
Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, DC SW7 2AZ
United Kingdom
+442075943294 (Phone)
HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski
CEPR (Centre for Economic Policy Research) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
HOME PAGE: http://www.cepr.org/
University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 18,867
Downloads: 4,343
Download Rank: 986

© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.407 seconds