In the financial world, the strategy of trend following – buying assets that are rising and selling those that are falling – has long captivated investors. This approach forms the backbone of many Commodity Trading Advisors (CTAs) and represents a significant portion of the hedge fund industry.
In their paper, “Capturing Unpredictability: Trend Following Alpha,” Aspect Capital researchers analyze trend following, a quantitative investment strategy. While often seen as a generator of “crisis alpha” during market downturns, the authors propose viewing it as a way to capture “unpredictability alpha.”
By examining data from 1880 to 2016, the authors aim to determine whether trend-following can consistently deliver positive returns after accounting for transaction costs and fees.
Quantica Capital’s research delves into trend-following Commodity Trading Advisors (CTAs) and their role in enhancing portfolio diversification.
Trend following focuses on identifying momentum in market prices and positioning accordingly, all within a framework of stringent risk management.