Time Series Momentum and Volatility Scaling

Posted: 2 Jun 2016

See all articles by Abby Kim

Abby Kim

Securities and Exchange Commission

Yiuman Tse

University of Missouri at Saint Louis

John K. Wald

University of Texas at San Antonio

Date Written: May 31, 2016

Abstract

Moskowitz, Ooi, and Pedersen (2012) show that time series momentum delivers a large and significant alpha for a diversified portfolio of international futures contracts. We find that their results are largely driven by volatility-scaling returns (or the so-called risk parity approach to asset allocation) rather than by time series momentum. Without scaling by volatility, time series momentum and a buy-and-hold strategy offer similar cumulative returns, and their alphas are not significantly different. This similarity holds for most sectors and for a combined portfolio of futures contracts. Cross-sectional momentum also offers a higher (similar) alpha than unscaled (scaled) time series momentum.

Keywords: momentum, futures pricing, international asset allocation

JEL Classification: G12, G13, G14

Suggested Citation

Kim, Abby and Tse, Yiuman and Wald, John K., Time Series Momentum and Volatility Scaling (May 31, 2016). Journal of Financial Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2786955

Abby Kim

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

Yiuman Tse

University of Missouri at Saint Louis ( email )

1 University Blvd.
St Louis, MO 63121
United States

John K. Wald (Contact Author)

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
210-458-6324 (Phone)

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