Time Series Momentum

May 01, 2012

Journal of Financial Economics

We document an asset pricing anomaly we term “time series momentum,” which is remarkably consistent across very different asset classes and markets. Specifically, we find strong positive predictability from a security’s own past returns for a set of 58 diverse futures and forward contracts that include country equity indices, currencies, commodities and sovereign bonds over more than 25 years of data.

We find that the past 12-month excess return of each instrument is a positive predictor of its future return. This time series momentum or “trend” effect persists for about a year and then partially reverses over longer horizons. These findings are robust across a number of sub-samples, look-back periods and holding periods. We find that 12-month time series momentum profits are positive not just on average across these assets, but for every asset contract we examine.

Time series momentum is related to, but different from, the phenomenon known as “momentum” in the finance literature, which is primarily cross-sectional in nature. The momentum literature focuses on the relative performance of securities in the cross section, finding that securities that recently outperformed their peers over the past 3 to 12 months continue to outperform their peers on average over the next month. Rather than focus on the relative returns of securities in the cross section, time series momentum focuses purely on a security’s own past return.

Decomposing both time series and cross-sectional momentum profits, we find that the dominant force to both strategies is significant positive auto-covariance between a security’s excess return next month and its lagged one-year return.

  • AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons.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.