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Does momentum investing work with futures?
In this Norges Bank Investment Management (NBIM) paper1, the authors investigated time-series momentum in 47 futures contracts in equity, bond, currency, and commodity markets over the period 1975-2013. They found significant excess returns of 0.79 percent per month for a multi-asset strategy with a 12-month lookback and one-month holding period.
However, these short-term momentum strategies require high turnover, and transactions costs substantially decrease net returns for investors. Longer holding periods tend to produce somewhat lower returns, but require less trading. Further, the authors find that high-volatility periods are typically the most challenging for time-series momentum strategies. They include a cautionary note that over the last five years of their sample period (2008-2013), returns from time-series momentum strategies have only been weakly positive.
A possible explanation for this is that central bank interventions have kept trends from persisting. At Robeco we use time-series momentum signals in several allocation models and have seen that time-series momentum picked up again after 2013.
1 “Momentum in futures market”, NBIM Discussion note, January 2014.