Momentum's Hidden Sensitivity to the Starting Day

Posted: 21 May 2019

See all articles by Philip Maymin

Philip Maymin

University of Bridgeport - School of Business

Zakhar Maymin

Independent

Gregg S. Fisher

Gerstein Fisher

Date Written: June 7, 2013

Abstract

We show that the profitability of time-series momentum strategies on commodity futures across their entire history is strongly sensitive to the starting day. Using daily returns with 252-day formation periods and 21-day holding periods, the Sharpe ratio depends on whether one starts on the first day, the second day, and so on, until the twenty first day. This sensitivity is higher for shorter trading periods. The same results also hold in simulation of independent and identically lognormally distributed returns, showing that this is not only an empirical pattern but a fundamental issue with momentum strategies. Portfolio managers should be aware of this latent risk: starting trading the same strategy on the same underlying but one day later could, even after many decades, turn a successful strategy into an unsuccessful one.

Keywords: momentum, portfolio management, sensitivity, risk, initial conditions, starting day

Suggested Citation

Maymin, Philip and Maymin, Zakhar and Fisher, Gregg S., Momentum's Hidden Sensitivity to the Starting Day (June 7, 2013). Journal of Investing, Summer 2014, Vol. 23, Number 2. Available at SSRN: https://ssrn.com/abstract=1899000 or http://dx.doi.org/10.2139/ssrn.1899000

Philip Maymin (Contact Author)

University of Bridgeport - School of Business ( email )

126 Park Avenue
Bridgeport, CT 06601
United States

Zakhar Maymin

Independent ( email )

Gregg S. Fisher

Gerstein Fisher ( email )

565 5th Avenue, 27th Floor
New York, NY 10017
United States
917-414-4009 (Phone)

HOME PAGE: http://www.gersteinfisher.com

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