Dec 08, 2010
Some links to published research on various forms of relative strength concepts. The concept is over a century old. (I am not aware of any studies that involve ETFs directly -- let us know if you know of one).
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1363476 Copy-paste URL into browser.
Abstract from paper #1 above 'Time Series Momentum':
"We document significant "time series momentum" in equity index, currency, commodity,
and bond futures for each of the 58 liquid instruments we consider. We find persistence
in returns for 1 to 12 months that partially reverses over longer horizons, consistent with
sentiment theories of initial under-reaction and delayed over-reaction. A diversified
portfolio of time series momentum strategies across all asset classes delivers substantial
abnormal returns with little exposure to standard asset pricing factors, and performs best
during extreme markets. We show that the returns to time series momentum are closely
linked to the trading activities of speculators and hedgers, where speculators appear to
profit from it at the expense of hedgers. "