To Trend or to Revert - A Portfolio Perspective on Time Series Momentum

Abstract

Time series momentum or trend following strategies have grown in popularity among institutional investors, with over $300 billion assets under management in managed futures strategies. A portfolio approach on recent return history of 60 liquid futures across different asset classes shows that evidence for both time series momentum and its opposite, reversal, is weak. While recent literature highlights evidence for reversal over long time horizons, this study shows reversal is significant even in short time horizons and that there is no clear pattern across asset classes.

Keywords: Time series momentum, Reversal, Portfolio optimization, Alternative Risk Premia, Alternative Beta

JEL Classification: G11, G14