Demystifying Managed Futures

Journal Of Investment Management (JOIM); Third Quarter 2013

Posted: 1 Oct 2013

See all articles by Brian Hurst

Brian Hurst

AQR Capital Management, LLC

Yao Hua Ooi

AQR Capital Management, LLC

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Date Written: September 30, 2013

Abstract

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

Hurst, Brian and Ooi, Yao Hua and Pedersen, Lasse Heje, Demystifying Managed Futures (September 30, 2013). Journal Of Investment Management (JOIM); Third Quarter 2013, Available at SSRN: https://ssrn.com/abstract=2333776

Brian Hurst (Contact Author)

AQR Capital Management, LLC

Greenwich, CT
United States

Yao Hua Ooi

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Lasse Heje Pedersen

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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