Cross-Universe Momentum for Timing Excess Returns

Summary

This document describes a benchmark-relative strategy that uses time-series momentum to time excess returns across related investable indices. It needs only benchmark and related-index return series, avoiding regression-based parameter estimation. The approach is applied to equity and bond benchmarks, then combined into an absolute-return portfolio benchmarked against the Eonia Total Return Index.

The reported long-only backtests show nearly twice the annual returns of the MSCI World and Bloomberg Barclays Euro Aggregate Corporate Bond benchmarks while meeting stated ex-ante risk requirements. The combined strategy has a reported Sharpe ratio of 1.8, and tests also find an advantage over fixed-weight portfolios, including portfolios with passive equity-factor exposures. The document says the strategy remains profitable after transaction costs. These findings are backtest results; the excerpt gives no sample dates, detailed implementation rules, or broader evidence about out-of-sample performance and robustness.

Key ideas

• The method times excess returns using time-series momentum across related investable indices.
• It requires benchmark and related-index series rather than regression-based parameter estimates.
• The document reports outperformance against equity and corporate-bond benchmarks in long-only backtests.
• It reports benefits over static mean-weight and passive factor-exposure portfolios, including after transaction costs.
• The excerpt does not specify sample periods or provide details needed to assess out-of-sample robustness.

Tags

# Timing Excess Returns A cross-universe approach to alpha


# Timing Excess Returns A cross-universe approach to alpha









We present a simple model that uses time series momentum in order to construct strategies that systematically outperform their benchmark. The simplicity of our model is elegant: We only require a benchmark time series and several related investable indizes, not requiring regression or other models to estimate our parameters. We find that our one size fits all approach delivers significant outperformance in both equity and bond markets while meeting the ex-ante risk requirements, nearly doubling yearly returns vs. the MSCI World and Bloomberg Barclays Euro Aggregate Corporate Bond benchmarks in a long-only backtest. We then combine both approaches into an absolute return strategy by benchmarking vs. the Eonia Total Return Index and find significant outperformance at a sharpe ratio of 1.8. Furthermore, we demonstrate that our model delivers a benefit versus a static portfolio with fixed mean weights, showing that timing of excess return momentum has a sizeable benefit vs. static allocations. This also applies to the passively investable equity factors, where we outperform a static factor exposure portfolio with statistical significance. Also, we show that our model delivers an alpha after deducting transaction costs.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.