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http://ssrn.com/abstract=1279594
 
 

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Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors


Geetesh Bhardwaj


SummerHaven Investment Management

Gary B. Gorton


Yale School of Management; National Bureau of Economic Research (NBER)

K. Geert Rouwenhorst


Yale School of Management - International Center for Finance

August 13, 2013

Yale ICF Working Paper No. 08-21

Abstract:     
Investors face significant barriers in evaluating the performance of hedge funds and commodity trading advisors (CTAs). The only available performance data comes from voluntary reporting to private companies. Funds have incentives to strategically report to these companies, causing these data sets to be severely biased. And, because hedge funds use nonlinear, state-dependent, leveraged strategies, it has proven difficult to determine whether they add value relative to benchmarks. We focus on commodity trading advisors, a subset of hedge funds, and show that during the period 1994-2012 CTA excess returns to investors (i.e., net of fees) averaged 1.8 per cent per annum over US T-bills, which is insignificantly different from zero. We estimate that CTAs on average earned gross excess returns (i.e., before fees) of 6.1%, which implies that funds captured most of their performance through charging fees. Yet, even before fees we find that CTAs display no alpha relative to simple futures strategies that are in the public domain. We argue that CTAs appear to persist as an asset class despite their poor performance, because they face no market discipline based on credible information. Our evidence suggests that investors’ experience of poor performance is not common knowledge.

Number of Pages in PDF File: 42

Keywords: Commodity Trading Advisors, CTA, Hedge Funds, Performance Measurement

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Date posted: October 8, 2008 ; Last revised: August 17, 2013

Suggested Citation

Bhardwaj, Geetesh and Gorton, Gary B. and Rouwenhorst, K. Geert, Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors (August 13, 2013). Yale ICF Working Paper No. 08-21. Available at SSRN: http://ssrn.com/abstract=1279594

Contact Information

Geetesh Bhardwaj
SummerHaven Investment Management ( email )
Soundview Plaza,
1266 East Main Street
Stamford, CT 06902
United States
Gary B. Gorton
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203 432-8931 (Fax)
HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
K. Geert Rouwenhorst (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6046 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://som.yale.edu/~geert/

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