Many financial asset measures exhibit a weak continuation tendency. We show that this tendency is much more pronounced in the run-up to major events such as key macroeconomic announcements and central bank meetings.
For example, the authors write that the likelihood of recent yield trends continuing during the week of the U.S. nonfarm payroll report release is 60% for 10-year U.S. Treasuries, compared with the 53% normal likelihood of trend continuation. There are similar pronounced continuation patterns for other bond markets and major currencies, as well as some evidence of a post-event reversal tendency.
The main explanation for these regularities is behavioral. Investors tend to cut losing positions and run winning positions in advance of some major event. Trend continuation is more pronounced in the days leading up to events and less likely after those events. The payroll report, published on the first Friday of each month, appears to be the single most important regular event for the Treasury market.
Other assets, such as European government bond yields, follow the same payroll week momentum patterns. In fact, European bonds are more influenced by U.S. payroll reports than by any European report. These trend continuation patterns appear to be quite robust.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.