Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • PA Reports
  • Submit an article
  • More
    • About JAI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • CAIA Member Login
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • LinkedIn
  • Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Alternative Investments
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Alternative Investments

The Journal of Alternative Investments

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • PA Reports
  • Submit an article
  • More
    • About JAI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • CAIA Member Login
  • LinkedIn
  • Twitter

Skew and Trend Aversion: The Impact of Positive Skew and Behavioral Biases on Allocation Decisions

Zachary Dugan and Alexander Greyserman
The Journal of Alternative Investments Winter 2020, 22 (3) 78-94; DOI: https://doi.org/10.3905/jai.2019.22.3.078
Zachary Dugan
is a Research Scientist at ISAM and a Visiting Senior Research Scientist at the Johns Hopkins University Institute for Data Intensive Science and Engineering and SciServer in Boca Raton, FL
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Alexander Greyserman
is the Chief Scientist of ISAM and an Adjunct Professor at the Columbia University Department of Mathematics in New York City, NY
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 

Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

Despite overwhelming evidence of the portfolio benefits, actual investor allocations to trend following strategies are typically 5% or less. Why is there such a significant discrepancy between the optimal allocation and actual allocation to Trend? The authors investigate known behavioral biases as a potential reason. In this article, the authors explore loss aversion, recency bias, and the ambiguity effect as they pertain to trend following, and define the combination of the three trend aversion. The authors quantify trend aversion and show that these biases are a viable explanation for suboptimal allocations to Trend. The authors demonstrate a direct connection between quantifications of known behavioral biases and current suboptimal allocations to trend following. Recognition of this relationship will help allocators make better decisions and construct more robust portfolios.

TOPICS: Analysis of individual factors/risk premia, risk management, wealth management, performance measurement, technical analysis

Key Findings

  • • We quantify behavioral biases and show they are a viable explanation for sub-optimal allocations to trend following.

  • • The quantitative levels of loss aversion necessary to justify typical allocations to trend following are consistent with psychological studies.

  • • The combination of loss aversion and recency bias is particularly impactful on trend following because of its positive skew.

  • © 2019 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Alternative Investments: 22 (3)
The Journal of Alternative Investments
Vol. 22, Issue 3
Winter 2020
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Alternative Investments.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Skew and Trend Aversion: The Impact of Positive Skew and Behavioral Biases on Allocation Decisions
(Your Name) has sent you a message from The Journal of Alternative Investments
(Your Name) thought you would like to see the The Journal of Alternative Investments web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Skew and Trend Aversion: The Impact of Positive Skew and Behavioral Biases on Allocation Decisions
Zachary Dugan, Alexander Greyserman
The Journal of Alternative Investments Dec 2019, 22 (3) 78-94; DOI: 10.3905/jai.2019.22.3.078

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Skew and Trend Aversion: The Impact of Positive Skew and Behavioral Biases on Allocation Decisions
Zachary Dugan, Alexander Greyserman
The Journal of Alternative Investments Dec 2019, 22 (3) 78-94; DOI: 10.3905/jai.2019.22.3.078
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • BACKGROUND
    • SIMULATING LOSS AVERSION
    • TWO ASSET PORTFOLIOS: TREND FOLLOWING AND THE S&P 500
    • PORTFOLIO WITH 11 ASSETS AND RANDOM ALLOCATIONS
    • TACTICAL ALLOCATION
    • RECENCY BIAS
    • LOSS AVERSION AND RECENCY BIAS COMBINATION
    • CONCLUSION
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 13 1600
 
NEW YORK
41 Madison Avenue, 20th Floor, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • LinkedIn
  • Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1520-3255 | E-ISSN: 2168-8435

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies