Microscopic Momentum

Short term t-bills are an astoundingly bad investment.

The Sharpe ratio is 0.047 over 50 years - a tenth of the S&P 500. The skew is negative and Max Wait to profitability is 14 years!

The Sharpe Trajectory shows that the IRX (13 week t-bill) index is all over the place - extremely inefficient, with an inflection point around 1980, when Volcker enters the picture.

Let's see how applying simplest momentum on a daily basis to the IRX works out.

IRX momentum results in Sharpe of 1.58, about 30 times more efficient; a very positive skew and a Max Wait of 7 years.

Of course the returns are pretty microscopic, average annual returns are 2%.

Nevertheless, this is like staring at a new world through a microscope. It's often overlooked but fascinating and a perfect textbook example of a successful momentum strategy.

Code for the Lazy Backtesting IDE is here.