Trends’ Signal Strength and the Performance of CTAs

37 Pages Posted: 30 Apr 2016 Last revised: 3 Oct 2018

See all articles by Gert Elaut

Gert Elaut

Ghent University; KBC Asset Management

Peter Erdos

RPM Risk and Portfolio Management AB; Smooth A Consulting; Artifex Holding Ltd.

Date Written: July 19, 2017

Abstract

We propose a new asset-based factor that relies on aggregating time series momentum signals over different horizons. Aggregating signals this way captures assets’ trend signal strength, thereby addressing a limitation in existing time series momentum strategies. Our factor mimics a trend-following manager that increases exposure to markets where trends develop and decreases exposure to markets where trends fade. Taking into account a number of practical implementation issues, we find that our proposed factor performs better at replicating the stylized facts of CTAs’ returns, allowing a more meaningful assessment of fund alpha.

Keywords: Time Series Momentum, Trend-Following, Managed Futures, CTAs, Benchmarks, Performance Measurement

JEL Classification: G11; G12; G13; G23

Suggested Citation

Elaut, Gert and Erdos, Peter, Trends’ Signal Strength and the Performance of CTAs (July 19, 2017). Available at SSRN: https://ssrn.com/abstract=2772047 or http://dx.doi.org/10.2139/ssrn.2772047

Gert Elaut

Ghent University ( email )

Ghent, 9000
Belgium

KBC Asset Management ( email )

Havenlaan 6
Brussels
Belgium

Peter Erdos (Contact Author)

RPM Risk and Portfolio Management AB ( email )

Norrmalmstorg 16
Stockholm, 111 46
Sweden

Smooth A Consulting ( email )

Tyskbagargatan, 9, lgh 1203
Stockholm, 11443
Sweden

Artifex Holding Ltd. ( email )

50 Grand Parade, Green Lanes
London, N4 1AG
United Kingdom

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