Time series momentum — also called absolute momentum — measures the relationship between an asset’s current price and its price at some point in the past, determining whether the asset has been trending upward (positive time series momentum) or downward (negative time series momentum) over the lookback period. Unlike cross-sectional momentum (which ranks assets against each other), time series momentum evaluates each asset only against its own historical price.

The Academic Foundation

Moskowitz, Ooi, and Pedersen’s 2012 paper “Time Series Momentum” documented persistent positive time series momentum across 58 liquid futures markets — equity indices, bonds, currencies, and commodities — over a 25-year sample. They found consistent positive autocorrelation in one-month to twelve-month returns: assets that had risen over the trailing period tended to continue rising; those that had fallen tended to continue falling. This finding was remarkably consistent across asset classes and time periods, constituting strong evidence of a genuine, persistent market phenomenon.

Implementation

A basic time series momentum strategy: at each rebalancing date, for each asset in the universe, calculate the trailing 12-month return. If positive, hold the asset long. If negative, exit or short the asset. Position sizes are typically volatility-scaled — allocating more to lower-volatility assets so that each position contributes approximately equal risk to the portfolio. Rebalancing is typically monthly. The strategy’s edge comes from the persistence of intermediate-term trends across multiple asset classes simultaneously.

Why Time Series Momentum Works

Time series momentum’s persistence is explained by the same behavioral forces that drive cross-sectional momentum: investor underreaction to new information, herding by institutional investors following trend signals, and the slow diffusion of macro information through global markets. Additionally, monetary policy changes — which have an extended impact on asset prices — create persistent price trends in fixed income and currency markets that trend followers can exploit.

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