Asymmetry, Tail Risk and Time Series Momentum

In this paper, we investigate how to improve the time series momentum strategy by using partial moments. We find that reversals of time series momentum can be partly predicted by tail-distributed upper and lower partial moments derived from daily returns of commodity futures. Based on such information, we propose rule-based approaches to improve the trading signals suggested by the time series momentum strategy. The empirical results based on Chinese commodity futures document statistically significant improvements of the Sharpe ratio in the out-of-sample period. These improvements are robust to different look-back windows.

Keywords: Commodity futures, Time series momentum, Momentum reversal, Partial moments

JEL Classification: G13, G17

Suggested Citation: Suggested Citation

Liu, Zhenya and Lu, Shanglin and Wang, Shixuan, Asymmetry, Tail Risk and Time Series Momentum (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3573878 or http://dx.doi.org/10.2139/ssrn.3573878