Trend-Following CTAs vs Alternative Risk-Premia (ARP) Products: Crisis Beta vs Risk-premia Alpha

Sepp A., and L. Dezeraud (2019), “Trend-Following CTAs vs Alternative Risk-Premia: Crisis beta vs risk-premia alpha”, The Hedge Fund Journal, Issue 138, pp. 20-31

27 Pages Posted: 8 May 2019 Last revised: 12 Jul 2019

See all articles by Artur Sepp

Artur Sepp

Quantica Capital AG

Louis Dezeraud

affiliation not provided to SSRN

Date Written: January 31, 2019

Abstract

We introduce a regime-conditional regression model to measure the risk profile of systematic investment strategies. We apply this model to classify systematic strategies into defensive and risk-seeking strategies with either positive or negative risk-premia alpha. Using the performance of the SG Trend Index, we show that trend-following CTAs belong to an exemplary class of defensive active strategies with insignificant risk-premia alpha. We show that our model displays a strong empirical evidence for a cross-section of hedge fund and alternative risk-premia indices.

Finally, we introduce the concept of a smart diversification for traditional and alternatives portfolios and apply trend-following CTAs to illustrate this concept. We show that the diversification benefits of trend-following CTAs arise from their “crisis” beta, and not crisis “alpha”.

Keywords: Trend-Following, CTA, Tail Risk Hedging, Quantitative Investment Strategies, Alpha, Skewness, Convexity

JEL Classification: G10, G11, G12

Suggested Citation

Sepp, Artur and Dezeraud, Louis, Trend-Following CTAs vs Alternative Risk-Premia (ARP) Products: Crisis Beta vs Risk-premia Alpha (January 31, 2019). Sepp A., and L. Dezeraud (2019), “Trend-Following CTAs vs Alternative Risk-Premia: Crisis beta vs risk-premia alpha”, The Hedge Fund Journal, Issue 138, pp. 20-31. Available at SSRN: https://ssrn.com/abstract=3368932

Artur Sepp (Contact Author)

Quantica Capital AG ( email )

Zurich
Switzerland

HOME PAGE: http://artursepp.com

Louis Dezeraud

affiliation not provided to SSRN

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