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Time series momentum and volatility scaling

Author

Listed:
  • Kim, Abby Y.
  • Tse, Yiuman
  • Wald, John K.

Abstract

Moskowitz, Ooi, and Pedersen (2012) show that time series momentum delivers a large and significant alpha for a diversified portfolio of international futures contracts. We find that their results are largely driven by volatility-scaling returns (or the so-called risk parity approach to asset allocation) rather than by time series momentum. Without scaling by volatility, time series momentum and a buy-and-hold strategy offer similar cumulative returns, and their alphas are not significantly different. This similarity holds for most sectors and for a combined portfolio of futures contracts. Cross-sectional momentum also offers a higher (similar) alpha than unscaled (scaled) time series momentum.

Suggested Citation

  • Kim, Abby Y. & Tse, Yiuman & Wald, John K., 2016. "Time series momentum and volatility scaling," Journal of Financial Markets, Elsevier, vol. 30(C), pages 103-124.
    • Handle: RePEc:eee:finmar:v:30:y:2016:i:c:p:103-124
    DOI: 10.1016/j.finmar.2016.05.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Momentum; Futures pricing; International asset allocation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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