Trends Everywhere? The Case of Hedge Fund Styles

45 Pages Posted: 20 Aug 2018 Last revised: 5 Nov 2019

See all articles by Charles Chevalier

Charles Chevalier

KeyQuant; Université Paris Dauphine - Department of Finance

Serge Darolles

Université Paris Dauphine - DRM-CEREG

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2018

Abstract

This paper investigates empirically whether time-series momentum returns can explain the performance of hedge funds in the cross-section. Following the trend following literature, a volatility-adjusted time-series momentum signal is applied on a daily basis across a large set of futures, covering the major asset classes. We build a hierarchical set of trend factors: the full version TREND can be split in summable factors across two dimensions, the horizon of the signals and the traded asset class. We show that Managed Futures, Global Macro and Fund of Hedge Funds strategies can be partly explained by a TREND exposure, whereas Equity Market Neutral and Quantitative Directional are only exposed to long term trend factors. Moreover, a TREND expo- sure is a significant determinant of hedge funds returns at the aggregate level, as well as at the fund level. Finally, funds with high TREND beta outperform by 41 basis points of alpha the funds with low Trend beta. These results prove useful when managing the risk of a portfolio of hedge funds strategies, since assessment of the Trend exposure is easier. Another contribution of this study is related to the understanding of the CTA space, composed of pure trend funds as well as funds that do not exhibit any TREND exposure.

Keywords: Managed Futures, Time Series Momentum, Trend-Following, Commodity Trading Advisor (CTA), Hedge Funds, Trading Strategies

JEL Classification: G11, G12, G15, F37

Suggested Citation

Chevalier, Charles and Darolles, Serge, Trends Everywhere? The Case of Hedge Fund Styles (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=3227903 or http://dx.doi.org/10.2139/ssrn.3227903

Charles Chevalier (Contact Author)

KeyQuant ( email )

20 rue Quentin-Bauchart
Paris, 75008
France

Université Paris Dauphine - Department of Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris Cedex 16, 75775
France

Serge Darolles

Université Paris Dauphine - DRM-CEREG ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

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