In this note, we survey the academic literature and provide empirical evidence related to time-series momentum strategies in the futures markets. We find that this phenomenon is remarkably consistent across 47 diverse futures contracts in our study, and it has led some to consider time-series momentum an asset pricing anomaly.
We find significant return persistence in the first 12 months which partially reverses, consistent with behavioural theories of early under-reaction and delayed over-reaction.
Time-series momentum strategies with different investment horizons appear to capture distinct return continuation phenomena. As a result, there exist potential diversification benefits from combining time-series momentum strategies of different frequencies.
The return profile of individual time-series momentum strategies generally deteriorates when underlying asset volatility is high. Assuming reasonable predictability of the volatility regime an asset is in, we argue that this relationship can help contribute to risk budgeting decisions in portfolio construction.
The recent weakly positive performance of time-series momentum strategies based on volatility parity weighting can be partially explained by lower trend persistence and higher asset correlations.