TIMING EXCESS RETURNS A CROSS-UNIVERSE APPROACH TO ALPHA

MARC ROHLOFF and ALEXANDER VOGT present a simple model that uses time series momentum in order to construct strategies that systematically outperform their benchmark. The authors find‧‧‧

MARC ROHLOFF and ALEXANDER VOGT present a simple model that uses time series momentum in order to construct strategies that systematically outperform their benchmark.

The authors find that a 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. They 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, it is demonstrated that the applied 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 the approach outperforms a static factor exposure portfolio with statistical significance.


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