Trend-Following and Spillover Effects

Abstract

We start by documenting trend-following (or time series momentum) in government bond, currency and equity index (all developed countries) at the asset class level, and at the multi-asset level, using 29 liquid instruments, with lookback periods ranging from 1 to 60 months. A typical multi-asset trend-following strategy delivers strong returns for short to medium term lookback periods. I document that trends spill over to other asset classes: past trends of assets can help to build investment strategies using other related assets. This spillover effect works better when using longer lookback periods than the sweet spot for trend-following.