Time Series Momentum in the US Stock Market: Empirical Evidence and Theoretical Analysis

44 Pages Posted: 22 May 2020 Last revised: 15 Mar 2022

See all articles by Valeriy Zakamulin

Valeriy Zakamulin

University of Agder - School of Business and Law

Javier Giner

University of La Laguna - Faculty of Economics, Business and Tourism

Date Written: April 26, 2020

Abstract

There is much controversy in the academic literature on the presence of short-term trends in financial markets and the trend-following strategy's profitability. We restrict our attention to studying the time series momentum in the S&P Composite stock price index. Our contributions are both empirical and theoretical. On the empirical side, we present compelling evidence of the presence of short-term momentum. For the first time, we suppose that the returns follow a p-order autoregressive process and evaluate this process's parameters. On the theoretical side, we develop a tractable theoretical model that contributes to our fundamental understanding of the trend-following strategy's risk, return, and performance. Using our model, we also estimate the power of statistical tests on the trend-following strategy's profitability and find that these tests suffer from the low power problem.

Keywords: time series momentum, trend-following, profitability, statistical power

JEL Classification: G12, G14, G17

Suggested Citation

Zakamulin, Valeriy and Giner, Javier, Time Series Momentum in the US Stock Market: Empirical Evidence and Theoretical Analysis (April 26, 2020). Available at SSRN: https://ssrn.com/abstract=3585714 or http://dx.doi.org/10.2139/ssrn.3585714

Valeriy Zakamulin (Contact Author)

University of Agder - School of Business and Law ( email )

Service Box 422
Kristiansand, N-4604
Norway
+47 38141039 (Phone)

HOME PAGE: http://vzakamulin.weebly.com/

Javier Giner

University of La Laguna - Faculty of Economics, Business and Tourism ( email )

Camino La Hornera s/n
La Laguna, Tenerife, 38071
Spain
+34 922317102 (Phone)

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