Cross‐Sectional and Time Series Momentum Returns and Market States

Recent evidence on momentum returns shows that the time series (TS) strategy outperforms the cross‐sectional (CS) strategy. We present new evidence that this happens only when the market continues in the same state, up or down. In fact, we find that the TS strategy underperforms the CS strategy when...

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Bibliographic Details
Published in:International review of finance 2018-12, Vol.18 (4), p.705-715
Main Authors: Cheema, Muhammad A., Nartea, Gilbert V., Man, Yimei
Format: Article
Language:English
Subjects:
Time series
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Summary:Recent evidence on momentum returns shows that the time series (TS) strategy outperforms the cross‐sectional (CS) strategy. We present new evidence that this happens only when the market continues in the same state, up or down. In fact, we find that the TS strategy underperforms the CS strategy when the market transitions to a different state. Our results also show that the difference in momentum returns between TS and CS strategies is related to both the net long and net short positions of the TS strategy.
ISSN:1369-412X
1468-2443
DOI:10.1111/irfi.12148