Follow the Leader: Enhancing Systematic Trend-Following Using Network Momentum

Abstract

We present a systematic, trend-following strategy, applied to commodity futures markets, that combines univariate trend indicators with cross-sectional trend indicators that capture so-called momentum spillover, which can occur when there is a lead-lag relationship between the trending behaviour of different markets. Our strategy utilises two methods for detecting lead-lag relationships, with a method for computing network momentum, to produce a novel trend-following indicator. We use our new trend indicator to construct a portfolio whose performance we compare to a baseline model which uses only univariate indicators, and demonstrate statistically significant improvements in Sharpe ratio, skewness of returns, and downside performance, using synthetic bootstrapped data samples taken from time-series of actual prices.

Tasks

Reproductions