Cross-Asset Signals and Time Series Momentum

Abstract

We document a new phenomenon in bond and equity markets that we call cross-asset time series momentum. Using data from 20 countries, we show that past bond market returns are positive predictors of future equity market returns, and past equity market returns are negative predictors of future bond market returns. We use this predictability to construct a diversified cross-asset time series momentum portfolio that yields a Sharpe ratio 45% higher than a standard time series momentum portfolio. We present evidence that time series momentum and cross-asset time series momentum are driven by slow-moving capital in bond and equity markets.

Keywords: asset pricing, time series momentum, cross-asset predictability, international financial markets, market efficiency, slow-moving capital

JEL Classification: G12, G15, G17, F37