1/ You Can't Always Trend When You Want (Babu, Hoffman, Levine, Ooi, Schroeder, Stamelos)
"Trend following has continued to profit from market moves and diversification. [However,] the average size of global market moves has been more muted than usual."
papers.ssrn.com/sol3/papers.cf…
"Trend following has continued to profit from market moves and diversification. [However,] the average size of global market moves has been more muted than usual."
papers.ssrn.com/sol3/papers.cf…
2/ The authors build a trend-following strategy using commodities, equity indices, bond markets, and currency pairs (some data back to 1877).
Roll to the next contract as expiration approaches
Inverse vol weighting
Transaction costs for position size changes but not rolling
Roll to the next contract as expiration approaches
Inverse vol weighting
Transaction costs for position size changes but not rolling
3/ Average magnitude of market moves = weighted avg of absolute value of Sharpe ratios for the markets traded
Trend efficacy = Intercept and coefficient when trend Sharpe ratios are regressed on SRs of market moves
Diversification = Sharpe ratio multiplier (asset→portfolio)
Trend efficacy = Intercept and coefficient when trend Sharpe ratios are regressed on SRs of market moves
Diversification = Sharpe ratio multiplier (asset→portfolio)
4/ "There is a clear historical positive relationship between the absolute magnitude of moves in individual markets and the risk-adjusted returns of a hypothetical trend-following strategy."
5/ "Trend following has historically been able to translate large moves in markets into positive risk-adjusted returns.
"A downward shift in the model fit (a lower α) and/or a more modest slope (a lower β) would indicate lower expected trend performance."
"A downward shift in the model fit (a lower α) and/or a more modest slope (a lower β) would indicate lower expected trend performance."
6/ "The magnitude of market moves in the current decade falls closer to the left of the x-axis (moves have been small).
"Trend efficacy has not been impaired. When large market moves have occurred over the current decade, trend following was able to benefit, as in 2014."
"Trend efficacy has not been impaired. When large market moves have occurred over the current decade, trend following was able to benefit, as in 2014."
7/ "There have been many anecdotal assertions that markets may have become more correlated after the Global Financial Crisis.... However, the data do not bear this out.
"The diversification multiplier has not been materially different in recent history than in the full sample."
"The diversification multiplier has not been materially different in recent history than in the full sample."
8/ "We do not observe any clear and persistent pattern in the impact of any of the factors over time.
"In the decades where trend following exhibited the strongest performance relative to the full sample, the magnitude of market moves carried a favorable impact."
"In the decades where trend following exhibited the strongest performance relative to the full sample, the magnitude of market moves carried a favorable impact."
9/ "The most significant factor affecting recent trend performance was the muted magnitude of market moves, not diversification or trend efficacy.
"While this could persist, there is little reason to believe that the fundamental dynamics of markets have changed permanently."
"While this could persist, there is little reason to believe that the fundamental dynamics of markets have changed permanently."
