Time series momentum in the US stock market: Empirical evidence and theoretical analysis

Valeriy Zakamulin and Javier Giner

International Review of Financial Analysis, 2022, vol. 82, issue C

Abstract: There is much controversy in the academic literature on the presence of short-term trends in financial markets and the trend-following strategy’s profitability. We restrict our attention to studying the time series momentum in the S&P Composite stock price index. Our contributions are both empirical and theoretical. On the empirical side, we present compelling evidence of the presence of short-term momentum. For the first time, we suppose that the returns follow a p-order autoregressive process and evaluate this process’s parameters. On the theoretical side, we develop a tractable theoretical model that contributes to our fundamental understanding of the trend-following strategy’s risk, return, and performance. Using our model, we also estimate the power of statistical tests on the trend-following strategy’s profitability and find that these tests suffer from the low power problem.

Keywords: Time series momentum; Trend-following; Profitability; Statistical power (search for similar items in EconPapers)
JEL-codes: G12 G14 G17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:82:y:2022:i:c:s1057521922001363

DOI: 10.1016/j.irfa.2022.102173

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