Network Momentum across Asset Classes

34 Pages Posted: 14 Aug 2023 Last revised: 14 Nov 2023

See all articles by Xingyue (Stacy) Pu

Xingyue (Stacy) Pu

University of Oxford - Oxford-Man Institute of Quantitative Finance

Stephen Roberts

University of Oxford - Oxford-Man Institute of Quantitative Finance

Xiaowen Dong

University of Oxford - Oxford-Man Institute of Quantitative Finance

Stefan Zohren

University of Oxford - Oxford-Man Institute of Quantitative Finance

Date Written: August 7, 2023

Abstract

We investigate the concept of network momentum, a novel trading signal derived from momentum spillover across assets. Initially observed within the confines of pairwise economic and fundamental ties, such as the stock-bond connection of the same company and stocks linked through supply-demand chains, momentum spillover implies a propagation of momentum risk premium from one asset to another. The similarity of momentum risk premium, exemplified by co-movement patterns, has been spotted across multiple asset classes including commodities, equities, bonds and currencies. However, studying the network effect of momentum spillover across these classes has been challenging due to a lack of readily available common characteristics or economic ties beyond the company level. In this paper, we explore the interconnections of momentum features across a diverse range of 64 continuous future contracts spanning these four classes. We utilise a linear and interpretable graph learning model with minimal assumptions to reveal the intricacies of the momentum spillover network. By leveraging the learned networks, we construct a network momentum strategy that exhibits a Sharpe ratio of 1.5 and an annual return of 22%, after volatility scaling, from 2000 to 2022. This paper pioneers the examination of momentum spillover across multiple asset classes using only pricing data, presents a multi-asset investment strategy based on network momentum, and underscores the effectiveness of this strategy through robust empirical analysis.

Keywords: momentum spillover, network momentum, graph learning, multi-asset strategy

JEL Classification: C30, C40, G10, G11

Suggested Citation

Pu, Xingyue (Stacy) and Roberts, Stephen and Dong, Xiaowen and Zohren, Stefan, Network Momentum across Asset Classes (August 7, 2023). Available at SSRN: https://ssrn.com/abstract=4540651 or http://dx.doi.org/10.2139/ssrn.4540651

Xingyue (Stacy) Pu (Contact Author)

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Stephen Roberts

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Xiaowen Dong

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Stefan Zohren

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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