Time-Series Momentum: Is It There?
56 Pages Posted: 6 May 2018 Last revised: 10 Jun 2018
Date Written: June 10, 2018
Time-series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return, and is the focus of several recent influential studies. This paper shows, however, that asset-by-asset time-series regressions reveal little evidence of TSM, both in- and out-of-sample. In a pooled regression, the typically used t-statistic can over-reject the no predictability hypothesis, and three versions of bootstrap-corrected t-statistics show that there is no evidence of TSM. From an investment perspective, although the TSM strategy is known to be profitable, its performance is virtually the same as that of a similar strategy that is based on historical mean and does not require predictability. Overall, the evidence of TSM is weak, particularly for the large cross section of assets.
Keywords: Time series momentum; Risk premium; Return predictability; Partial least squares
JEL Classification: G12, G14, G15, F37
Suggested Citation: Suggested Citation