Is This Time Different? Trend Following and Financial Crises

43 Pages Posted: 9 Jan 2014 Last revised: 23 Sep 2014

Mark C. Hutchinson

University College Cork

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems

Date Written: February 28, 2014

Abstract

Following large positive returns in 2008, Commodity Trading Advisors (CTAs) received increased attention and allocations from institutional investors. Subsequent performance has been below its long term average. This has occurred in a period following the largest financial crisis since the great depression. In this paper, using almost a century of data, we investigate what typically happens to the core strategy pursued by these funds in global financial crises. We also examine the time series behaviour of the markets traded by CTAs during these crisis periods. Our results show that in an extended period following financial crises trend following average returns are less than half those earned in no-crisis periods. Evidence from regional crises shows a similar pattern. We also find that futures markets do not display the strong time series return predictability prevalent in no-crisis periods, resulting in relatively weak returns for trend following strategies for, on average, four years following the start of a financial crisis.

Keywords: Trend Following, Time Series Momentum, Financial Crisis, CTA

JEL Classification: G10, G19

Suggested Citation

Hutchinson, Mark C. and O'Brien, John, Is This Time Different? Trend Following and Financial Crises (February 28, 2014). Available at SSRN: https://ssrn.com/abstract=2375733 or http://dx.doi.org/10.2139/ssrn.2375733

Mark C. Hutchinson (Contact Author)

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland

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