Zakamulin Study Challenges Full Shorting in Bear Markets

Time-Series Momentum typically converts a 12-month excess-return signal into a full long position during uptrends and a full short during downtrends. Valeriy Zakamulin, a finance professor at the University of Agder’s School of Business and Law, argues that this symmetric rule confuses regime detection with portfolio construction. His research asks how much exposure investors should hold after a market state is identified, shifting the focus from signal design to Sharpe-maximizing position sizes.

Posted to SSRN on March 31, 2026, the paper introduces an optimal regime-dependent allocation, or OPT, framework. Tests on 18 portfolio datasets, trained from July 1963 through December 1997 and evaluated from January 1998 through December 2025, lifted the average out-of-sample Sharpe ratio to 0.506 from TSM’s 0.208. In the four-regime model, OPT raised it to 0.628 from 0.496, while estimated bear-market exposure was often near zero or mildly positive rather than fully short.