Time series reversal in trend‐following strategies

• DOI: 10.1111/eufm.12349
• Publication Date: 2021-12-15T12:32:56Z
• Authors: Jiadong Liu; Fotis Papailias
• Keywords: Trend following; Investment; Continuation

Abstract This paper empirically studies the reversal pattern following formation of trend‐following signals in time series context. is statistically significant and usually occurs between 12 24 months after signals. Employing a universe 55 liquid futures, we find that instruments with sell portfolio (‘losers’) contribute to this type reversal, even if their profits are not realised. The buy (‘winners’) much less. A double‐sorted investment strategy based on both return continuation yields gains which significantly higher than corresponding strategy.