Momentum Strategies in Futures Markets and Trend-following Funds
UBS Investment Bank; Queen Mary, University of London; Imperial College Business School
Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance
January 5, 2013
Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper
In this paper, we rigorously establish a relationship between time-series momentum strategies in futures markets and commodity trading advisors (CTAs) and examine the question of capacity constraints in trend-following investing. First, we construct a very comprehensive set of time-series momentum benchmark portfolios. Second, we provide evidence that CTAs follow time-series momentum strategies, by showing that such benchmark strategies have high explanatory power in the time-series of CTA index returns. Third, we do not find evidence of statistically significant capacity constraints based on two different methodologies and several robustness tests. Our results have important implications for hedge fund studies and investors.
Number of Pages in PDF File: 60
Keywords: Trend-following, Momentum, Managed Futures, CTA, Capacity Constraints
JEL Classification: E3, G14
Date posted: December 6, 2011 ; Last revised: January 6, 2013
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