RT Journal Article SR Electronic T1 Momentum’s Hidden Sensitivity to the
Starting Day JF The Journal of Investing FD Institutional Investor Journals SP 114 OP 123 DO 10.3905/joi.2014.23.2.114 VO 23 IS 2 A1 Philip Z. Maymin A1 Zakhar G. Maymin A1 Gregg S. Fisher YR 2014 UL https://pm-research.com/content/23/2/114.abstract AB In this article, the authors show that the profitability of time-series momentum strategies on commodity futures across their entire history is strongly sensitive to the starting day. When using daily returns with 252-day formation periods and 21-day holding periods, the Sharpe ratio depends on whether one starts on the first day, the second day, and so on, until the 21st day. This sensitivity is higher for shorter trading periods. The same results also hold in simulations of independent and identically lognormally distributed returns, showing that this is not just an empirical pattern but a fundamental issue with momentum strategies. Portfolio managers should be aware of this latent risk: Starting trading the same strategy on the same underlying but one day later could, even after many decades, turn a successful strategy into an unsuccessful one.TOPICS: Commodities, futures and forward contracts, performance measurement