Time Series Momentum and Volatility Scaling

The School of Business were honoured to have invited Dr Yiuman Tse, Endowed Chair and Professor of Finance at The University of Missouri – St Louis, to deliver a Distinguished Lecture on “Time Series Momentum and Volatility Scaling” on 24 June 2016. Academic staff actively raised questions in the discussion with Dr Tse after his lively and informative presentation.

The abstract of Dr Tse’s research paper is included as below:

“Moskowitz, Ooi, and Pedersen (2012) show that time series momentum delivers a large and significant alpha for a diversified portfolio of international futures contracts. We find that their results are largely driven by volatility-scaling returns (or the so-called risk parity approach to asset allocation) rather than by time series momentum. Without scaling by volatility, time series momentum and a buy-and-hold  strategy offer similar cumulative returns, and their alphas are not significantly different. This similarity holds for most sectors and for a combined portfolio of futures contracts. Cross-sectional momentum also offers a higher (similar) alpha than unscaled (scaled) time series momentum.”