Momentum Crash Together With Recovery

In my book I devoted considerable attending to the phenomenon of "Momentum Crashes" that professor Kent Daniel discovered. This refers to the fact that momentum strategies by in addition to large function real poorly inward the immediate aftermath of a fiscal crisis. This phenomenon obviously spans many property classes, in addition to has been to a greater extent than or less since the Great Depression.  Sometimes it lasted multiple decades, in addition to at other times these strategies recovered during the lifetime of a momentum trader. So how bring momentum strategies fared later on the 2008 fiscal crisis, in addition to bring they recovered?

First, let's hold off at the Diversified Trends Indicator (formerly the S&P DTI index), which is a fairly generic trend-following strategy applied to futures.  Here are the index values since inception (click to enlarge):

in addition to hither are the values for 2013:



After suffering relentless refuse since 2009, it has finally shown positive returns YTD!

Now hold off at a momentum strategy on the soybean futures (ZS) that I bring been working on. Here are the cumulative returns from 2009 to 2011 June:

in addition to hither the cumulative returns since then:

The deviation is stark!

Despite evidences that indeed momentum strategies bring enjoyed a full general recovery, nosotros must play the business office of skeptical fiscal scientists in addition to hold off for option theories. If whatsoever reader can tell us an alternative, plausible explanation why ZS should commencement to display trending behaviour since July 2011, precisely non before, delight ship service that inward the comment area. The prize for the best explanation: I volition expose inward mortal to a greater extent than details nearly this strategy to that reader. (To claim the prize, delight include the finally four digit of your band release inward the ship service for identification purpose.)

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Upcoming events:

1. I volition live instruction an online workshop on Momentum Strategies from July thirty - August 1. Registration information tin ambit the sack live flora here.
2. My friend doc Haksun Li is offering a Certificate inward Quantitative Investment serial of courses.