Can Economic Factors Improve Momentum Trading Strategies? The Case of Managed Futures during the COVID-19 Pandemic

Renata Guobužaitė and Deimantė Teresienė
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Renata Guobužaitė: Finance Department, Faculty of Economics and Business Administration, Vilnius University, LT-10223 Vilnius, Lithuania
Deimantė Teresienė: Finance Department, Faculty of Economics and Business Administration, Vilnius University, LT-10223 Vilnius, Lithuania
Authors registered in the RePEc Author Service: Deimante Vasiliauskaite

Economies, 2021, vol. 9, issue 2, 1-16

Abstract: Systematic momentum trading is a prevalent risk premium strategy in different portfolios. This paper focuses on the performance of the managed futures strategy based on the momentum signal across different economic regimes, focusing on the COVID-19 pandemic period. COVID-19 had a solid but short-lived impact on financial markets, and therefore gives a unique insight into momentum strategies’ performance during such critical moments of market stress. We offer a new approach to implementing momentum strategies by adding macroeconomic variables to the model. We test a managed futures strategy’s performance with a well-diversified futures portfolio across different asset classes. The research concludes that constructing a portfolio based on academically/economically sound momentum signals with its allocation timing based on broader economic factors significantly improves managed futures strategies and adds significant diversification benefits to the investors’ portfolios.

Keywords: backwardation; economic regimes; momentum strategy; systematic trading (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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