Managed Futures Research: A Composite CTA Performance Review

Abstract

The data and time dependency of empirically based financial research is a common concern to both academics and practitioners. Changes in regulatory, trading, and investor environments may result in dramatic changes in the underlying viability of any investment vehicle and/or trading process. This is especially true for managed futures programs, for which a single commonly used database does not exist and which often are dynamic in nature and are impacted by changes in trading instruments and underlying markets. In this analysis, the authors conduct a series of empirical tests on CTA indices that are designed to represent the overall return to the reporting universe of CTAs (e.g., composite CTA index). These tests are similar to that previously conducted on a series of “composite” hedge fund indices. Using major composite CTA indices as a surrogate for CTA portfolios, these tests include cross-sectional and time series analysis of 1) distributional characteristics, 2) measures of relative performance, and 3) significance of various trading and momentum factors in multivariate regression. Results reflect the common wisdom that perform results may be dominated by the period of analysis as well as the index and multi-factor regression model used in the analysis.