Asymmetry, Tail Risk and Time Series Momentum

37 Pages Posted: 7 May 2020 Last revised: 14 Sep 2021

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

In this paper, we investigate how to improve the time series momentum strategy by using partial moments. We find that reversals of time series momentum can be partly predicted by tail-distributed upper and lower partial moments derived from daily returns of commodity futures. Based on such information, we propose rule-based approaches to improve the trading signals suggested by the time series momentum strategy. The empirical results based on Chinese commodity futures document statistically significant improvements of the Sharpe ratio in the out-of-sample period. These improvements are robust to different look-back windows.

Keywords: Commodity futures, Time series momentum, Momentum reversal, Partial moments

JEL Classification: G13, 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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