2021/06/15 by Bruno P. C. Levy, Levy, Bruno P. C., Hedibert F. Lopes +1
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Statistical Finance (q-fin.ST) #Stock Market Forecasting Methods #q-fin.ST
paper · pdf · doi:10.48550/arxiv.2106.08420
openalex publication_date 2021/06/15 · arxiv created 2021/11/05 · arxiv updated 2021/11/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Time series momentum strategies are widely applied in the quantitative financial industry and its academic research has grown rapidly since the work of Moskowitz, Ooi and Pedersen (2012). However, trading signals are usually obtained via simple observation of past return measurements. In this article we study the benefits of incorporating dynamic econometric models to sequentially learn the time-varying importance of different look-back periods for individual assets. By the use of a dynamic binary classifier model, the investor is able to switch between time-varying or constant relations between past momentum and future returns, dynamically combining or selecting different momentum speeds during turning points, improving trading signals accuracy and portfolio performance. Using data from 56 future contracts we show that a mean-variance investor will be willing to pay a considerable management fee to switch from the traditional naive time series momentum strategy to the dynamic classifier approach.