We document a new phenomenon in bond and equity markets that we call cross-asset time series momentum. Using data from 20 countries, we show that past bond market returns are positive predictors of future equity market returns and past equity market returns are negative predictors of future bond market returns. We use this predictability to construct a diversified cross-asset time series momentum portfolio that yields a Sharpe ratio 45% higher than a standard time series momentum portfolio. We present evidence that time series momentum and cross-asset time series momentum are driven by slow-moving capital in bond and equity markets.
| Original language | English |
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| Pages (from-to) | 63-85 |
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| Journal | Journal of Financial Economics |
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| Volume | 136 |
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| Issue number | 1 |
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| DOIs | |
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| Publication status | Published - 1 Apr 2020 |
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| Externally published | Yes |
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We are truly grateful to an anonymous referee whose comments vastly improved the paper. We also thank Nick Baltas, Tarun Chordia, Darrell Duffie, Amit Goyal, Robin Greenwood, Kewei Hou, Shiyang Huang, Wenxi Jiang, Petri Jylhä, Matthijs Lof, Tobias Moskowitz, Mikko Niemenmaa, Michael Weber, Russ Wermers, and seminar participants at Aalto University, the Chinese University of Hong Kong, CQAsia, the Hong Kong Polytechnic University, and the University of Hong Kong for their helpful comments, and Sami Aho, Markus Hjulgren, and Tomi Martas for excellent research assistance. Pitkäjärvi (grant no. 20180068) and Suominen (grant no. 20100505) thank the OP Group Research Foundation and Suominen thanks the Yrjö Jahnsson Foundation (grant no. 595510) for financial support.
We are truly grateful to an anonymous referee whose comments vastly improved the paper. We also thank Nick Baltas, Tarun Chordia, Darrell Duffie, Amit Goyal, Robin Greenwood, Kewei Hou, Shiyang Huang, Wenxi Jiang, Petri Jylhä, Matthijs Lof, Tobias Moskowitz, Mikko Niemenmaa, Michael Weber, Russ Wermers, and seminar participants at Aalto University, the Chinese University of Hong Kong, CQAsia, the Hong Kong Polytechnic University, and the University of Hong Kong for their helpful comments, and Sami Aho, Markus Hjulgren, and Tomi Martas for excellent research assistance. Pitkäjärvi (grant no. 20180068) and Suominen (grant no. 20100505) thank the OP Group Research Foundation and Suominen thanks the Yrjö Jahnsson Foundation (grant no. 595510) for financial support.