Asymmetry, Tail Risk and Time Series Momentum

33 Pages Posted: 7 May 2020

See all articles by Zhenya Liu

Zhenya Liu

Renmin University of China; CERGAM, Aix-Marseille University

Shanglin Lu

Renmin University of China - School of Finance

Shixuan Wang

University of Reading - Department of Economics

Date Written: April 11, 2020

Abstract

Similar to the cross-sectional momentum crashes, the time series momentum experiences deep and persistent drawdowns in the stressed time of slumps in the upward momentum, rebounds in the downward momentum, and long time sideways market. We measure the upside and downside risk using the upper and lower partial moments, which are derived from the individual asset’s daily return. The time series momentum reversals are partly forecasted by the asymmetric structure of the tail-distributed upside and downside risk. An implementable systematic rule-based decision function is designed to manage the signals given by the time series momentum. Its empirical application on the Chinese commodity futures markets documents improvements in terms of both the Sharpe ratio and the Sortino ratio from 2008 to 2019. These results are robust across the time series momentum with different looking back windows.

Keywords: Asset Pricing, Futures Pricing, Time Series Momentum, Momentum Reversal, Partial Moments

JEL Classification: G12, G13, G15, G17

Suggested Citation

Liu, Zhenya and Lu, Shanglin and Wang, Shixuan, Asymmetry, Tail Risk and Time Series Momentum (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3573878 or http://dx.doi.org/10.2139/ssrn.3573878

Zhenya Liu

Renmin University of China ( email )

School of Finance
Beijing, Beijing 100872
China

CERGAM, Aix-Marseille University ( email )

Aix-Marseille University
3 Avenue Robert Schuman,
Aix-en-Provence, 13628
France
0781668685 (Phone)

Shanglin Lu (Contact Author)

Renmin University of China - School of Finance ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

Shixuan Wang

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom

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