Carry and Time-Series Momentum: A Match Made in Heaven

Journal of Alternative Investments (Forthcoming)

19 Pages Posted: 10 Nov 2019

See all articles by Marat Molyboga

Marat Molyboga

Efficient Capital Management, LLC; Illinois Institute of Technology - Stuart School of Business, IIT

Junkai Qian

Illinois Institute of Technology, Stuart School of Business

Chaohua He

Illinois Institute of Technology

Date Written: October 16, 2019

Abstract

This paper introduces a novel approach to combining time-series momentum and carry trade by conditioning trading signals of time-series momentum on the sign of the basis, a key input for carry trade. We find that this new technique applied to four major asset classes improves the Sharpe ratio of time-series momentum by approximately 0.17 net of fees. The improvement in performance is greater during recessions and, therefore, conditioning time-series momentum signals on the sign of the basis improves performance when it matters the most. Thus, the new approach has practical importance for investors and asset managers who attempt to improve their long-term performance without increasing downside risk during periods of market turbulence.

Keywords: carry, time-series momentum, basis

JEL Classification: G11

Suggested Citation

Molyboga, Marat and Qian, Junkai and He, Chaohua, Carry and Time-Series Momentum: A Match Made in Heaven (October 16, 2019). Journal of Alternative Investments (Forthcoming). Available at SSRN: https://ssrn.com/abstract=3470864

Marat Molyboga (Contact Author)

Efficient Capital Management, LLC ( email )

4355 Weaver Parkway
Warrenville, IL 60555
United States
6306576842 (Phone)

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

10 West 35th Street, 18th Floor
Chicago, IL 60616
United States

Junkai Qian

Illinois Institute of Technology, Stuart School of Business ( email )

10 West 35th Street, 18th Floor
Chicago, IL 60616
United States

Chaohua He

Illinois Institute of Technology ( email )

Stuart Graduate School of Business
565 W. Adams St.
Chicago, IL 60661
United States

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