Decomposing Cross-Asset Time Series Momentum

Abstract

I decompose the expected return difference between cross-asset time series momentum and time series momentum into market timing and risk premium components, and show that market timing accounts for 71–79% of the difference. I thus show that two recent critiques of time series momentum do not apply to cross-asset time series momentum. Instead, the outperformance of cross-asset time series momentum is driven specifically by the strategy's ability to exploit cross-asset time series predictability in global bond and equity markets.

Keywords: asset pricing, cross-asset time series momentum, time series momentum, momentum decomposition

JEL Classification: G12, G15, G17, F37