Short-Term Trend: A Jewel Hidden in Daily Returns

This paper examines the performance of time-series momentum strategies using daily returns for 78 futures markets across four major asset classes between January 1985 and December 2017. We find that the 252-day, 63-day and 21-day momentum strategies perform similarly to the previously documented 12-month, 3-month and 1-month momentum strategies, respectively. The performance is stronger with volatility-based position sizing, robust to implementation considerations such as a one day gap between signal generation and execution, and persistent across asset classes and sub-periods. We introduce a shorter duration momentum strategy with weekly rebalancing frequency, which cannot be replicated using monthly returns. We find that the short-term strategy is a strong diversifier to the longer-term strategies, but the benefit may be reduced, or even completely offset, if the quality of trade execution is poor. We also find that the positive contribution of short-term momentum is driven by its superior diversifying characteristics rather than due to the rebalancing frequency effect.