When It Pays to Follow the Crowd: Strategy Conformity and CTA Performance

36 Pages Posted: 14 Nov 2019

See all articles by Nicolas P. B. Bollen

Nicolas P. B. Bollen

Vanderbilt University - Finance

Mark C. Hutchinson

University College Cork

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems; University College Cork - Cork University Business School

Date Written: June 19, 2019

Abstract

Prior research in hedge fund and mutual fund management finds a positive relation between portfolio distinctiveness and subsequent performance, suggesting that strategy differentiation is associated with superior skill. We find that CTAs with returns that correlate more strongly with those of peers feature higher performance and are more highly exposed to a time series momentum factor. In contrast to hedge funds and mutual funds, CTA strategy conformity appears to be a signal of managerial skill. These results indicate that a common trend following strategy drives CTA returns and that CTAs offer investors an opportunity to invest in momentum.

Keywords: CTA, Strategy Distinctiveness

JEL Classification: G11, G23

Suggested Citation

Bollen, Nicolas P.B. and Hutchinson, Mark C. and O'Brien, John, When It Pays to Follow the Crowd: Strategy Conformity and CTA Performance (June 19, 2019). Available at SSRN: https://ssrn.com/abstract=3481243 or http://dx.doi.org/10.2139/ssrn.3481243

Nicolas P.B. Bollen (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Mark C. Hutchinson

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

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