Posted: 30 Oct 2015
Date Written: October 23, 2015
In this paper, we argue that the value addition from investing in short-term futures trading strategies is their reconcilability with unanticipated risk shocks. We perform empirical analysis on short-term and long-term CTA, i.e., trend-following, strategies and find that the exclusive characteristic of short-term CTAs is their significant and consistent long position in unanticipated risk shocks. Unlike long-term CTA strategies, their exposure to these risk shocks is prevalent in different states of the risk cycle. Our findings imply that short-term futures trading strategies can offer considerable diversification opportunities for investors during equity market crisis situations.
Keywords: Risk Shock, VIX, CTA, Trend-Following
JEL Classification: G12, G23
Suggested Citation: Suggested Citation
Peltomäki, Jarkko and Lundström, Christian, Beyond Trends: The Reconcilability of Short-Term CTA Strategies with Risk Shocks (October 23, 2015). Journal of Alternative Investments, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2678851