Breaking Bad Trends

22 Pages Posted: 3 Jun 2020 Last revised: 11 Jun 2020

See all articles by Ashish Garg

Ashish Garg

Research Affiliates LLC

Christian L. Goulding

Research Affiliates, LLC

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Michele Mazzoleni

Research Affiliates, LLC

Date Written: May 7, 2020

Abstract

We document and quantify the negative impact of trend breaks (i.e., turning points in the trajectory of asset prices) on the performance of standard trend-following strategies across several assets and asset classes. The frequency of trend breaks has increased in recent years, which can help explain the lower performance of monthly trend following in the last decade. We illustrate how to repair trend-following strategies by exploiting the return forecasting properties of the different types of trend breaks: market corrections and rebounds. We construct dynamic multi-asset trend-following portfolios, which harvest more than double the average returns of standard trend-following investing strategies over the last decade.


Also see our related paper: Momentum Turning Points

Keywords: Time-Series Momentum, Volatility Timing, Market Timing, Asset Pricing, Trend Following, Turning Points, Momentum Speed, Mean Reversion, Behavioral Finance

JEL Classification: G12, G13

Suggested Citation

Garg, Ashish and Goulding, Christian L. and Harvey, Campbell R. and Mazzoleni, Michele, Breaking Bad Trends (May 7, 2020). Available at SSRN: https://ssrn.com/abstract=3594888 or http://dx.doi.org/10.2139/ssrn.3594888

Ashish Garg

Research Affiliates LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Christian L. Goulding

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michele Mazzoleni

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://https://www.researchaffiliates.com/en_us/about-us/our-team/michele-mazzoleni.html

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