Return Signal Momentum
62 Pages Posted: 22 May 2017 Last revised: 16 Feb 2021
Date Written: February 15, 2019
A new type of momentum based on the signs of past returns is introduced. This momentum is driven primarily by sign dependence, which is positively related to average return and negatively related to return volatility. An empirical application using a universe of commodity and financial futures offers supporting evidence for the existence of such momentum. Investment strategies based on return signal momentum result in higher returns and Sharpe ratios and lower drawdown relative to time series momentum and other benchmark strategies. Overall, return signal momentum can benefit investors as an effective strategy for speculation and hedging.
Keywords: Return Sign, Trading Strategies, Market Timing, Time Series Momentum
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation