Time Series Momentum and Volatility Scaling

Time Series Momentum and Volatility Scaling

August 31, 2016 Momentum Investing Research, Tactical Asset Allocation Research, Managed Futures Research
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(Last Updated On: December 21, 2016)

There is a new paper published in the Journal of Financial Markets that digs a bit deeper into the Moskowitz, Ooi, and Pedersen “Time Series Momentum” paper (some background here).

ts paper

The paper is behind a paywall, but luckily there is a 4 part lecture by the authors explaining the key results:

Bottomline: After controlling for volatility weighting,  time series momentum isn’t that interesting…according to this paper…

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Definitions of common statistics used in our analysis are available here (towards the bottom)

About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • JAK78

    Do you agree with the authors that TSM isn’t that interesting after controlling for volatility? They make comparisons based on a 7 factor alpha. I think TSM still is useful for reducing left tail risk when investing on a long-only basis. Also, according to Figure 1A of their paper, TSM still looks good versus buy-and-hold for equity indices and some other assets.

  • Nope, I think TSM is totally interesting after controlling for vol weighting, but we also like to seriously consider research that questions our prior beliefs to ensure we aren’t getting enamored with our own BS. lol.
    More to follow when we get some bandwidth…

  • BG

    Is the paper not available on SSRN because of a JFM embargo or because Elsevier acquired SSRN?

  • BG

    The diversifying power and “crisis alpha” benefits of time-series momentum appear to be outside the scope of the paper. According to Figures 2 and 3, TSMOM appears to offer both benefits more readily than buy-and-hold regardless of scaling.

  • Hannibal Smith

    Futures and equities are not the same; discounting of future knowns is far more severe with future contracts. I didn’t pay too much attention to the financial contracts in the individual breakdown. Was the performance better for the financials than the commodities?