Akindynos-Nikolaos Balta, Robert Kosowski: Constructing a time-series momentum strategy involves the volatility-adjusted aggregation of univariate strategies and therefore relies heavily on the efficiency of the volatility estimator and on the quality of the momentum trading signal.
Imperial College Business School
EDHEC Business School
Using a dataset with intra-day quotes of 12 futures contracts from November 1999 to October 2009, we investigate these dependencies and their relation to time-series momentum profitability and reach a number of novel findings. Momentum trading signals generated by fitting a linear trend on the asset price path maximise the out-of-sample performance while minimising the portfolio turnover, hence dominating the ordinary momentum trading signal in literature, the sign of past return. Regarding the volatilityadjusted aggregation of univariate strategies, the Yang-Zhang range estimator constitutes the optimal choice for volatility estimation in terms of maximising efficiency and minimising the bias and the ex-post portfolio turnover.
|Research Cluster :||Finance|