Asymmetry, Tail Risk and Time Series Momentum
37 Pages Posted: 7 May 2020 Last revised: 14 Sep 2021
Date Written: April 11, 2020
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
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