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Time-series momentum as an intra- and inter-industry effect: Implications for market efficiency

  • Shynkevich, Andrei
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    Existing studies on time-series predictability in equity returns base their analysis on the usage of a broad market index or individual stocks showing that trend chasing trading rules have largely been futile. This paper shows that trend continuation is predominantly an intra-industry rather than a market-wide or a single-company effect. After adjusting for data snooping bias, trend chasing trading rules achieve superior predictability for a number of sectors and industries in the 1990s. A simultaneous application of trading rules to each sector or industry individually yields superior predictability on the aggregate market level in the 1990s implying that time-series momentum can also be experienced as an inter-industry effect, i.e., momentum can travel across industries reflecting the phenomenon of sector rotation. Sector and industry portfolios exhibit no predictability in their returns in the 2000s due to a persistent negative autocorrelation in their return series. A sharp and sustained rise in correlations between sectors and industries observed since the early 2000s makes it difficult for actively managed trading strategies to outperform the passive benchmarks.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148619513000507
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    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 69 (2013)
    Issue (Month): C ()
    Pages: 64-85

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    Handle: RePEc:eee:jebusi:v:69:y:2013:i:c:p:64-85
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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