Trends’ Signal Strength and the Performance of CTAs
37 Pages Posted: 30 Apr 2016 Last revised: 3 Oct 2018
Date Written: July 19, 2017
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: Suggested Citation