Is This Time Different? Trend-Following and Financial
Crises

Abstract

Following large positive returns in 2008, CTAs received increased attention and allocations from institutional investors. Subsequent performance has been below its long term average. This has occurred in a period following the largest financial crisis since the Great Depression. In this article, using almost a century of data, the authors investigate what typically happens to the core strategy pursued by these funds in global financial crises. They also examine the time series behavior of the markets traded by CTAs during these crisis periods. Their results show that in an extended period following financial crises, trend following average returns are less than half of those earned in no-crisis periods. Evidence from regional crises shows a similar pattern. They also find that futures markets do not display the strong time series return predictability prevalent in no-crisis periods, resulting in relatively weak returns for trend following strategies in the four years immediately following the start of a financial crisis.