Time Series Reversal in Trend Following Strategies

46 Pages Posted: 22 May 2017 Last revised: 29 Aug 2017

See all articles by Jiadong Liu

Jiadong Liu

Queen's University Belfast - Queen's Management School

Fotis Papailias

Quantf Research; University of London, King's College London, Department of Management

Date Written: May 22, 2017

Abstract

A reversal pattern in the time series context from 12 to 24 months after the formation of trend following signals is observed in a universe of 55 liquid futures instruments. We find that instruments with sell signals in the trend following portfolio (i.e. "losers") contribute to this type of reversal, even if their profits are not realised. The instruments with buy signals in the trend following portfolio (i.e. "winners") contribute much less. A double-sorted strategy based on both return continuation and reversal yields to an average return of 18% per annum, which is significantly higher compared to its corresponding trend following strategy.

Keywords: Reversal, Trend Following, Market Timing, Time Series Momentum, Returns Signal Momentum

JEL Classification: G11, G12, G15

Suggested Citation

Liu, Jiadong and Papailias, Fotis, Time Series Reversal in Trend Following Strategies (May 22, 2017). Available at SSRN: https://ssrn.com/abstract=2971875 or http://dx.doi.org/10.2139/ssrn.2971875

Jiadong Liu (Contact Author)

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

Fotis Papailias

Quantf Research ( email )

London
United Kingdom

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

University of London, King's College London, Department of Management ( email )

150 Stamford Street
London, SE1 9NN
United Kingdom

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