Contrarian Research

Huang, Li, Wang and Zhou recently wrote a contrarian paper about trend following (12 by 1 month time series momentum) indicating that the (final) outcome of trend following portfolio is very similar to buy/sell-and-hold of portfolios of the same assets based on long-term drift rather than 12-month momentum. If you are a trend follower, you will probably not agree with them, but the outcome based approach is interesting nevertheless. Read and debate in small groups. To be published in the Journal of Financial Economics.

As many trend followers does not believe that they forecast, this approach should have some naive affinity as this involves even fewer forecasts.

Time-Series Momentum: Is It There? (Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou)

Time series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return and is the focus of several recent influential studies. This paper shows that asset by-asset time series regressions reveal little evidence of TSM, both in- and out-of-sample. While the t-statistic in a pooled regression appears large, it is not statistically reliable as it is less than the critical values of parametric and nonparametric bootstraps. From an investment perspective, the TSM strategy is profitable, but its performance is virtually the same as that of a similar strategy that is based on historical sample mean and does not require predictability. Overall, the evidence on TSM is weak, particularly for the large cross section of assets.

Download the paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3165284

For a few curated research papers: https://nilssonhedge.com/research-tools/external-research-managed-futures/

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