Cross-Sectional and Time-Series Momentum

A lot of white papers explain momentum as a cross-sectional result. What this means is that future outperformance of a stock is predicated by its outperformance relative to its peers. (MCD vs GE) This is the standard way of doing it, ranking a universe of stocks based on ROC or some other measure.

The other one is time series momentum. This is not a new concept. The idea is that a securities past performance predicts its own future return. From this, auto-correlation is used. The main advantage is that time series momentum can measure and analyze all asset classes because it relies only on its own past price.

The reason I introduced these two different explanation for momentum is that both offer promising fundamental concepts that can be used to build robust strategies. I leave it to the reader to explore further.

Futher Reading:

http://pages.stern.nyu.edu/~lpederse/papers/TimeSeriesMomentum.pdf

http://www.eurojournals.com/irjfe_50_14.pdf

http://web.mit.edu/lewellen/www/Documents/Momentum.pdf

http://pages.stern.nyu.edu/~lpederse/papers/TSMOM_Slides.pdf

SE

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