Abstract
We examine the profitability of a cross-asset time-series momentum strategy (XTSMOM) constructed using past crude oil options and stock market returns as joint predictors. We show that past crude oil options straddle returns negatively predict while past stock returns positively predict future stock market returns globally. The XTSMOM outperforms the single-asset time-series momentum (TSMOM) and buy-and-hold strategies with higher mean returns, lower standard deviations, and higher Sharpe ratios. The XTSMOM is also able to forecast economic cycles. We contribute to the literature on cross-asset momentum spillovers as well as on the impacts of crude oil uncertainty on stock markets.
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