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Practical Applications Summary
In The Long and Short of Trend Followers, published in the Fall 2019 issue of The Journal of Alternative Investments, Joakim Agerback of Finserve Nordic, Tor Gudmundsen-Sinclair of Global Defense and Security Fund, and Jarkko Peltmäki of Stockholm Business School develop a new set of risk factors to better understand the performance of trend following commodity trading advisors (CTAs).
Trend following CTAs use futures to follow both upward trends with long positions and downward trends using short positions. They do not face significant short-selling constraints that are present in many other investment vehicles. The relatively constraint-free ability to follow both upward and downward trends implies that skilled CTAs should be able to make money in both bull and bear markets. Theoretically, investment in CTAs can therefore provide desirable diversification to portfolios and enhance returns. Until now, an understanding of the exact nature of long-short CTA strategy performance has been thwarted by the inability of performance attribution studies to disentangle the effects of the long and short sides. The results of this article reveal new insights into the determinants of CTA performance.
- © 2019 Pageant Media Ltd
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