Time-series momentum as an intra- and inter-industry effect: Implications for market efficiency

Andrei Shynkevich

Journal of Economics and Business, 2013, vol. 69, issue C, 64-85

Abstract: Existing studies on time-series predictability in equity returns base their analysis on the usage of a broad market index or individual stocks showing that trend chasing trading rules have largely been futile. This paper shows that trend continuation is predominantly an intra-industry rather than a market-wide or a single-company effect. After adjusting for data snooping bias, trend chasing trading rules achieve superior predictability for a number of sectors and industries in the 1990s. A simultaneous application of trading rules to each sector or industry individually yields superior predictability on the aggregate market level in the 1990s implying that time-series momentum can also be experienced as an inter-industry effect, i.e., momentum can travel across industries reflecting the phenomenon of sector rotation. Sector and industry portfolios exhibit no predictability in their returns in the 2000s due to a persistent negative autocorrelation in their return series. A sharp and sustained rise in correlations between sectors and industries observed since the early 2000s makes it difficult for actively managed trading strategies to outperform the passive benchmarks.

Keywords: Time-series momentum; Return predictability; Data snooping bias; Market efficiency (search for similar items in EconPapers)
JEL-codes: C58 G14 G17 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:69:y:2013:i:c:p:64-85

DOI: 10.1016/j.jeconbus.2013.05.004

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