How is time-series momentum measured?

• A. Relative to a group of securities
• B. Based on absolute performance over its own history
• C. Against historical market averages
• D. In relation to the broader economy

Answer: (B)

Time-series momentum is a strategy that focuses on the performance of a particular asset over time rather than comparing it against other assets or benchmarks. This approach evaluates how the asset has performed relative to its past performance. The idea is that if an asset has shown positive performance over a certain period, it is likely to continue to perform well in the near future, and conversely, if it has shown negative performance, it may continue to decline.

Measuring time-series momentum involves analyzing the historical returns of the asset itself—essentially looking at its trends and patterns over time. This approach allows investors to make predictions based purely on the asset's trajectory, without being influenced by the relative performance of other securities or broader market indicators.

This distinction emphasizes the individual performance dynamics of the asset itself, enabling a more tailored investment strategy focused on its historical performance data. In this context, assessing an asset's momentum based on its absolute performance aligns with the foundational principles of time-series momentum.