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Time Series Momentum Trading Strategy and Autocorrelation Amplification

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  • K. J. Hong
  • S. Satchell

Abstract

This article assumes general stationary processes for prices and derives the autocorrelation function for a general Moving Average (MA) trading rule to investigate why this rule is used. The result shows that the MA rule is popular because it can identify price momentum and is a simple way of tracing and exploiting price autocorrelation structure without necessarily knowing its precise structure. We focus on analyzing the impact of price momentum on the profitability of the MA rule because the price momentum effect tends to be stronger and more persistent than the return momentum effect.

Suggested Citation

  • K. J. Hong & S. Satchell, 2013. "Time Series Momentum Trading Strategy and Autocorrelation Amplification," Cambridge Working Papers in Economics 1322, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1322
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    References listed on IDEAS

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    Cited by:

    1. KiHoon Jimmy Hong & Eliza Wu, 2014. "Can Momentum Factors Be Used to Enhance Accounting Information based Fundamental Analysis in Explaining Stock Price Movements?," Research Paper Series 346, Quantitative Finance Research Centre, University of Technology, Sydney.

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