TU Momentum Strategy

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Futures exhibit serial correlation because of the roll return component of the total return. The sign of roll returns does not vary very often. Futures stay in contango or backwardation over long periods of time. Spot returns vary very rapidly in sign and magnitude. If a future is held for long period and if average roll returns dominate average total returns, serial correlation of total returns is found.

Since time series momentum of futures is due to persistence of signs of roll returns, the lagged roll return is used by the strategy and it goes long when return higher than threshold and short when return is negative than threshold and exit any existing position otherwise.

This strategy is applicable to other futures as well.