Interest Rate Momentum and Monetary Policy Cycles
15 Pages Posted: 23 Mar 2020 Last revised: 10 Aug 2020
Date Written: February 22, 2020
This paper explores time series momentum in fixed income securities. Almost all countries in our large sample of 28 advanced and emerging markets have statistically significant positive time series momentum strategy returns. Shorter maturity fixed income securities have greater momentum returns compared to longer maturity securities arguably as a result of investor underreaction to monetary policy cycles. A significantly greater share of positive momentum returns occurs during falling rate environments versus rising rate environments as a result of the secular decline in interest rates experienced in recent decades suggesting that if low interest rates persist, momentum returns could be lower.
Keywords: Asset Pricing, Interest Rates, Fixed Income, Value, Momentum, Behavioral Finance, Monetary Policy
JEL Classification: G12, G14, G15, G4, E5
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