Demystifying Managed Futures
Journal Of Investment Management (JOIM); Third Quarter 2013
Posted: 1 Oct 2013
Date Written: September 30, 2013
We show that the returns of Managed Futures funds and CTAs can be explained by time series momentum strategies and we discuss the economic intuition behind these strategies. Time series momentum strategies produce large correlations and high-R-squares with Managed Futures indices and individual manager returns, including the largest and most successful managers. While the largest Managed Futures managers have realized significant alphas to traditional long-only benchmarks, controlling for time series momentum strategies drives the alphas of most managers to zero. We consider a number of implementation issues relevant to time series momentum strategies, including risk management, risk allocation across asset classes and trend horizons, portfolio re-balancing frequency, transaction costs, and fees.
Keywords: Managed futures, time series momentum, trends, commodity trading advisor (CTA), hedge funds, trading strategies
JEL Classification: G00
Suggested Citation: Suggested Citation