Performance, Persistence, and Pay: A New Perspective on CTAs

44 Pages Posted: 23 May 2017

See all articles by Ingomar Krohn

Ingomar Krohn

University of Warwick - Finance Group

Alexander Mende

RPM Risk & Portfolio Management AB; University of Hannover

Michael Moore

University of Warwick - Warwick Business School

Vikas Raman

Lancaster University - Department of Accounting and Finance

Date Written: May 14, 2017

Abstract

Using a large and representative dataset of commodity trading advisors (CTAs), we provide compelling evidence that CTAs generate significant net excess returns of at least 4.1% annually; that approximately 64% of the funds have positively skewed returns; and that there is considerable heterogeneity amongst CTAs, with systematic trend followers doing significantly better than other subcategories. More importantly, we find that CTAs not only beat passive, normative benchmarks, with a yearly gross alpha of at least 5.3% but also generate significant, incremental crisis alpha during periods of equity market turmoil. Finally, we show that cross-sectional differences in the performance of CTAs are persistent up to 3 years and that managerial compensation predicts fund performance. Our results are consistent with a rational market where investors compete to invest with successful CTA managers, who use fees to signal their skills to investors.

Keywords: Commodity Trading Advisors, Alternative Investments, Information and Market Efficiency, Managerial Skill, Performance

JEL Classification: G11, G12, G14, G23

Suggested Citation

Krohn, Ingomar and Mende, Alexander and Moore, Michael John and Raman, Vikas, Performance, Persistence, and Pay: A New Perspective on CTAs (May 14, 2017). WBS Finance Group Research Paper No. 2972358. Available at SSRN: https://ssrn.com/abstract=2972358 or http://dx.doi.org/10.2139/ssrn.2972358

Ingomar Krohn (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

Alexander Mende

RPM Risk & Portfolio Management AB ( email )

Stureplan 15
SE-111 45 Stockholm
Sweden

University of Hannover

Welfengarten 1
D-30167 Hannover, 30167
Germany

Michael John Moore

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Vikas Raman

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

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