Research and publications
Cross-Sectional and Time-Series Momentum in the US Sovereign Bond Market
The Journal of Fixed Income, Vol. 31, Issue 3 Winter 2022.
In this article, authors undertake a systematic ...
Author(s):
Lionel Martellini, Riccardo Rebonato and Jean-Michel Maeso
Summary:
The Journal of Fixed Income, Vol. 31, Issue 3 Winter 2022.
In this article, authors undertake a systematic, security-level analysis of momentum and reversal strategies in US Treasuries covering more than 40 years of data. They distinguish between what we call “market” and “self” time-series momentum (reversal) strategies and present an exact identity between these two time-series and the cross-sectional momentum (reversal) strategies. This identity helps them identify the sources of profitability of the various strategies and raises an interesting question regarding the contribution to the profitability of the first and second principal components of yield changes.
They find that there exist look-back and investment periods for which momentum time series strategies (both “self” and “market”) give rise to statistically and economically significant positive Sharpe ratios; but they find that after adjusting for duration, the reversal cross-sectional strategy has an even larger Sharpe ratio and is profitable over a wider range of look-back and investment periods.
They find an explanation for this finding in the mean-reverting properties of the yield-curve slope.
Finally, they discover that the duration-adjusted reversal cross-sectional strategy can be successfully implemented in a long-only fashion.
Key Findings
- In the US Treasury market time-series momentum strategies have a significantly positive Sharpe ratio.
- In the same market reversal strategies are even more attractive after adjusting for duration.
- Both strategies can be implemented in a long-only fashion and are explained by the mean-reverting properties of the yield curve slope.
| Type : | Academic Publication |
|---|---|
| Date : | 07/12/2021 |
| Editor : | The Journal of Fixed Income Winter 2022 |
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