What’s So Special about the Time Series Momentum?

Abstract

It is found that the buy-and-hold (B&H) strategy for the S&P 500 Index (^GSPC) in Jan 1950–Apr 2019 had a significantly higher return than that of the time series momentum (TSM). However, TSM was superior in terms of the Sharpe ratio due to its lower volatility. The statistics for all 10-year periods and 20-year periods within the range of Jan 1950–Apr 2019 shows that the simple moving average (SMA) strategy outperformed TSM in the past but since the late 1990s their performance has become very close. The profitability of B&H and the trend-following trading strategies, TSM and SMA, may be explained with that the optimal ARMA model of the monthly ^GSPC returns in Jan 1950–Apr 2019 has a positive mean.

Keywords: time series momentum, buy-and-hold strategy, simple moving average strategy

JEL Classification: G11