4 years in the past the very best work that exists to take a look at the energy of pattern momentum strategies was up to date.
Two Centuries of Multi-Asset Momentum
(Equities, Bonds, Currencies, Commodities, Sectors and Shares)
Christopher C. Geczy
Mikhail Samonov1
You’ll be able to obtain it from this hyperlink in full:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607730
Nothing lower than 215 years of backtesting and not solely within the stock market, however in all of the necessary property that exist. As we are able to see, it’s a colossal job.
Right here is the whole desk of analyzed property and dates:
Here’s a notice of the work explaining the desk.
Complete return: Shares embody dividends; The currencies add USD minus the return of the international T-bills; The bonds embody curiosity; Commodities use future returns. Complete Return for Sectors and Shares makes use of CRSP returns on the US fairness degree Outliers are outlined as month-to-month returns> 100%.
On this hyperlink yow will discover detailed explanations of the research.
https://alphaarchitect.com/2018/04/24/the-worlds-longest-multi-asset-momentum-investing-backtest/
Let’s use some quotes:
First, the paper examines how timing works inside (and throughout) every asset class. That is accomplished by rating securities right into a relative “winner” and a relative “loser” portfolio utilizing the traditional 12_2 momentum display – that is the twelve month momentum of every safety safety excluding the final two months (therefore 10 months returns). Inside every universe, the highest third are thought of “winners” and the underside third are thought of “losers.”
The next desk examines the returns of every asset class for the Winner, Loser and Winner minus the Loser portfolios.
Take a look at this different quote:
As proven above, the medium-term momentum has a continuation sample, whereby winners maintain successful and losers maintain dropping. This fundamental technique appears to work in all of the universes examined in a pattern of greater than 200 years. Speak about robustness!
Effectively, they see it work These strategies work on something and for nearly 200 years they’ve. There aren’t any exceptions on any asset. However the research goes deeper. And do they all the time work? Or solely seasonally?
The one approach to see it’s by finding out for shorter intervals of time. In order that they research all of the property for many years, and that is the end result:
On this desk, the strategies talked about above have been used once more.
The desk is obvious, momentum strategies can cease working for a lot of years and then do it once more.
In stock markets, uncooked supplies and currencies there are streaks of 40 years the place no efficiency could be obtained. Though it is extremely necessary to notice that all these streaks are prior to 1900. From that date on, the many years with out efficiency are remoted.
On the stock market since World Battle II, each decade has carried out with this kind of technique. In international change, because the 1870s, yield has been obtained.
And within the final column you see the miracle that diversification all the time achieves, one thing that we have a tendency to neglect very simply.
If we mix all asset lessons, we get very steady returns with these strategies with solely the 1820s not performing. For the reason that 1980s the returns are fairly excessive.
An element to have in mind in relation to the final sentence is that the correlation between property is widening in a really noticeable approach. That is harmful, it would price extra and extra to diversify and if the stock market falls, all property could have issues on the similar time in a worldwide disaster. This desk couldn’t be extra clear and revealing.
As might be seen within the final part of the desk from 2009 to 2014, the rise in correlations is spectacular and harmful for us, as now we have already commented.
This different quote from the evaluation hyperlink appears very fascinating to me:
The doc additionally delves into sector-moment strategies (shopping for the successful sectors and shorting the dropping sectors) inside every nation.
The outcomes are proven under:
Effectively right here is the end result:
Apart from just a few exceptions, simply 3, this may work in all nations. Spain is not any exception and it really works effectively. In truth, in Spain it really works a lot better than the common.
And at last one other very fascinating matter, you may’t maintain wanting on the place perpetually, you’ve got to be ready to rotate.
See this quote from the research evaluation hyperlink:
Additionally, if you happen to personal a portfolio of momentum shares too lengthy, there may be really a momentum “reversal” impact (so ensure you have a turnover!). On this paper, the authors study how lengthy the “premium” momentum lasts for L / S portfolios by monitoring the portfolio’s month-to-month returns after the formation date.
And right here is the desk.
Briefly, a deep research, which in our view sheds quite a bit of mild on this kind of technique, which is obvious that with defects like every part else, they’re completely legitimate.
Jose Luis Carpathians
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