Momentum Strategies in Futures Markets and Trend-following Funds
60 Pages Posted: 6 Dec 2011 Last revised: 12 Oct 2015
Date Written: January 5, 2013
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
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