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Momentum Strategies in Futures Markets and Trend-following Funds

60 Pages Posted: 6 Dec 2011 Last revised: 12 Oct 2015

Nick Baltas

Imperial College Business School; Goldman Sachs International

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance

Date Written: January 5, 2013

Abstract

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.

Keywords: Trend-following, Momentum, Managed Futures, CTA, Capacity Constraints

JEL Classification: E3, G14

Suggested Citation

Baltas, Nick and Kosowski, Robert, Momentum Strategies in Futures Markets and Trend-following Funds (January 5, 2013). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper. Available at SSRN: https://ssrn.com/abstract=1968996 or http://dx.doi.org/10.2139/ssrn.1968996

Nick Baltas (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom

Goldman Sachs International

Peterborough Court
133 Fleet Street
London, EC4A 2BB
United Kingdom

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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