Basis-momentum strategies and ranking periods

Kwon, Kyung Yoon and Kang, Jangkoo and Yun, Jaesun (2021) Basis-momentum strategies and ranking periods. Finance Research Letters, 43. 101997. ISSN 1544-6123 (https://doi.org/10.1016/j.frl.2021.101997)

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Abstract

We analyze basis-momentum, the difference between the past 12 months' momentum in first- and second-nearby futures contracts suggested by Boons and Prado (2018). Since basis-momentum is related to the slope and the curvature over the ranking period, we split the 12-month ranking period into three subperiods—the current month, the past five months, and the six months before the previous five months—and construct three basis-momentums with them. Our results show that these three basis-momentums differ substantially in predicting future returns and have different economic determinants, namely, imbalance in the supply and demand and volatility risk in financial markets.

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