Decades of research have produced a library on the “momentum” anomaly in markets. Momentum refers to the tendency for financial assets with the best prior returns to continue to produce superior results, at least for a time. Previous findings—regarding individual U.S. stocks as well as foreign shares, broad equity indexes, commodities, and currencies—contradict the common wisdom that markets are efficient. Curiously, even though the market for nominal U.S. Treasury securities is among the deepest and most liquid in the world, no one has rummaged through government bond term structures to find similar strategies that work, no matter what the future general direction of interest rates. Yet my recent staff report describes simple low-cost trading rules that produce positively skewed and sizable excess returns, merely by directing investors to construct portfolios of maturities that have had superior returns. Neither short sales nor exposure to interest rate risk is required.
Just how does the strategy work, and what are the risks?....FRBNY — Liberty Street Economics
Can Investors Use Momentum to Beat the U.S. Treasury Market?
J. Benson Durham | assistant vice president in the Federal Reserve Bank of New York’s Markets Group
1 comment:
Good link, as it gives me something to write about next week.
On my first pass of reading however, the EMH is "not dead yet" (at least based on this article).
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