An all-inclusive guide to trend following As more and more savvy investors move into the space, trend following has become one of the most popular investment strategies. Written for investors and investment managers, Trend Following with Managed Futures offers an insightful overview of both the basics and theoretical foundations for trend following. The book also includes in-depth coverage of more advanced technical aspects of systematic trend following. The book examines relevant topics such as: Trend following as an alternative asset class Benchmarking and factor decomposition…mehr
As more and more savvy investors move into the space, trend following has become one of the most popular investment strategies. Written for investors and investment managers, Trend Following with Managed Futures offers an insightful overview of both the basics and theoretical foundations for trend following. The book also includes in-depth coverage of more advanced technical aspects of systematic trend following. The book examines relevant topics such as:
Trend following as an alternative asset class Benchmarking and factor decomposition Applications for trend following in an investment portfolio And many more By focusing on the investor perspective, Trend Following with Managed Futures is a groundbreaking and invaluable resource for anyone interested in modern systematic trend following.
ALEX GREYSERMAN, PHD, is Chief Scientist at ISAM and serves as Adjunct Professor in the Graduate Program in Mathematical Finance at Columbia University. KATHRYN M. KAMINSKI, PHD, is the Deputy Managing Director of the Institute for Financial Research (SIFR), external market commentator for the CME Group, and affiliated faculty at the Stockholm School of Economics.
Inhaltsangabe
Foreword Andrew W. Lo xi Preface xv Introduction xxi PART I HISTORICAL PERSPECTIVES CHAPTER 1 A Multicentennial View of Trend Following 3 The Tale of Trend Following: A Historical Study 5 Return Characteristics over the Centuries 8 Risk Characteristics over the Centuries 17 Portfolio Benefi ts over the Centuries 19 Summary 21 Appendix: Included Markets and Relevant Assumptions 21 Further Reading and References 23 PART II TREND FOLLOWING BASICS CHAPTER 2 Review of Futures Markets and Futures Trading 27 Forward and Futures Contract Fundamentals 27 Review of the Managed Futures Industry 34 Futurization 38 Summary 43 Further Reading and References 43 CHAPTER 3 Systematic Trend Following Basics 45 The Basic Building Blocks of a Trend Following System 47 Strategy Classifi cation and Core Diff erentiators 56 Partitioning Trend Following Systems 60 Summary 61 Further Reading and References 61 PART III THEORETICAL FOUNDATIONS CHAPTER 4 Adaptive Markets and Trend Following 65 The Adaptive Market Hypothesis 66 A Framework for Speculative Risk Taking 75 A Closer Look at Crisis Alpha 78 Summary 91 Further Readings and References 91 CHAPTER 5 Divergence and the Tradability of Trend 93 Risk versus Uncertainty 93 Convergence versus Divergence 95 Measuring Market Divergence at the Portfolio Level 106 Testing the Stationarity of Market Divergence 114 The Tradability of Trend 117 The Importance of Entry versus Exit 121 Summary 124 Further Reading and References 124 CHAPTER 6 The Role of Interest Rates and the Roll Yield 127 Collateral Yield 128 Decomposition into Roll Yield and Spot 131 Summary 138 Further Reading and References 139 PART IV TREND FOLLOWING AS AN ALTERNATIVE ASSET CLASS CHAPTER 7 Properties of Trend Following Returns 143 Trend Following as an Alternative Asset Class 143 Crisis Alpha 145 Crisis Beta 149 Key Statistical Properties 155 Summary 159 Appendix: A Summary of Common Performance Measures 160 Further Reading and References 161 CHAPTER 8 Characteristics of Drawdowns, Volatility, and Correlation 163 Understanding the Properties of Drawdowns 163 Volatility of a Trend Following Portfolio 173 Correlation and Diversification at the Portfolio Level 181 Summary 185 Further Reading and References 186 CHAPTER 9 The Hidden and Unhidden Risks of Trend Following 187 Directional and Nondirectional Strategies: A Review 187 Defining Hidden and Unhidden Risks 188 The Myths and Mystique of the Sharpe Ratio 195 Unraveling Hidden Risks of Dynamic Leveraging 196 Summary 207 Further Reading and References 207 CHAPTER 10 Trend Following in Various Macroeconomic Environments 209 Interest Rate Environments 210 Regulatory Forces and Government Intervention 217 Postcrisis Recovery 221 Summary 228 Further Reading and References 229 PART V BENCHMARKING AND STYLE ANALYSIS CHAPTER 11 Return Dispersion 233 Strategy Classification and Return Dispersion 234 A Closer Look at Capital Allocation and Position Sizing 239 Return Dispersion from an Investor's Perspective 247 Empirical and Theoretical Considerations for Correlated Return Series 256 Summary 263 Further Reading and References 264 CHAPTER 12 Index and Style Factor Construction 265 Divergent Risk Taking Revisited 266 Defining a Divergent Trend Following Strategy 269 Constructing Style Factors 277 Characteristics of the Style Factors 282 Summary 286 Further Reading and References 287 CHAPTER 13 Benchmarking and Style Analysis 289 A Framework for Return-Based Style Analysis 290 Style Analysis for Individual CTA Managers 294 Sector Level Analysis of the Market Size Factor 299 Style Analysis Clarifications 304 Manager Selection and Allocation 310 Summary 313 Further Reading and References 313 PART VI TREND FOLLOWING IN AN INVESTMENT PORTFOLIO CHAPTER 14 Portfolio Perspectives on Trend Following 317 A Closer Look at Crisis Alpha 317 The Impact of Mark-to-Market on Correlation 326 Understanding Volatility Cyclicality 329 Summary 334 Further Reading and References 335 CHAPTER 15 Practicalities of Size, Liquidity, and Capacity 337 Does Size Matter? 337 The Impact of Less Liquid Markets 345 Summary 351 Appendix: Market Symbols and Names 352 Further Reading and References 352 CHAPTER 16 Diversifying the Diversifier 353 From Pure Trend Following to Multistrategy 354 Portfolio Analysis of the Move to Multistrategy 358 Hidden Risk of Leveraging Low-Volatility Strategies 368 Summary 374 Further Reading and References 374 CHAPTER 17 Dynamic Allocation to Trend Following 375 A Framework for Dynamic Allocation 375 Mean Reversion in Trend Following Return Series 377 Investigating Dynamic Allocation Strategies 384 Summary 389 Appendix: A Theoretical Analysis of Mean Reversion in Trend Following 390 Further Reading and References 393 Glossary 395 About the Authors 407 Index 409
Foreword Andrew W. Lo xi Preface xv Introduction xxi PART I HISTORICAL PERSPECTIVES CHAPTER 1 A Multicentennial View of Trend Following 3 The Tale of Trend Following: A Historical Study 5 Return Characteristics over the Centuries 8 Risk Characteristics over the Centuries 17 Portfolio Benefi ts over the Centuries 19 Summary 21 Appendix: Included Markets and Relevant Assumptions 21 Further Reading and References 23 PART II TREND FOLLOWING BASICS CHAPTER 2 Review of Futures Markets and Futures Trading 27 Forward and Futures Contract Fundamentals 27 Review of the Managed Futures Industry 34 Futurization 38 Summary 43 Further Reading and References 43 CHAPTER 3 Systematic Trend Following Basics 45 The Basic Building Blocks of a Trend Following System 47 Strategy Classifi cation and Core Diff erentiators 56 Partitioning Trend Following Systems 60 Summary 61 Further Reading and References 61 PART III THEORETICAL FOUNDATIONS CHAPTER 4 Adaptive Markets and Trend Following 65 The Adaptive Market Hypothesis 66 A Framework for Speculative Risk Taking 75 A Closer Look at Crisis Alpha 78 Summary 91 Further Readings and References 91 CHAPTER 5 Divergence and the Tradability of Trend 93 Risk versus Uncertainty 93 Convergence versus Divergence 95 Measuring Market Divergence at the Portfolio Level 106 Testing the Stationarity of Market Divergence 114 The Tradability of Trend 117 The Importance of Entry versus Exit 121 Summary 124 Further Reading and References 124 CHAPTER 6 The Role of Interest Rates and the Roll Yield 127 Collateral Yield 128 Decomposition into Roll Yield and Spot 131 Summary 138 Further Reading and References 139 PART IV TREND FOLLOWING AS AN ALTERNATIVE ASSET CLASS CHAPTER 7 Properties of Trend Following Returns 143 Trend Following as an Alternative Asset Class 143 Crisis Alpha 145 Crisis Beta 149 Key Statistical Properties 155 Summary 159 Appendix: A Summary of Common Performance Measures 160 Further Reading and References 161 CHAPTER 8 Characteristics of Drawdowns, Volatility, and Correlation 163 Understanding the Properties of Drawdowns 163 Volatility of a Trend Following Portfolio 173 Correlation and Diversification at the Portfolio Level 181 Summary 185 Further Reading and References 186 CHAPTER 9 The Hidden and Unhidden Risks of Trend Following 187 Directional and Nondirectional Strategies: A Review 187 Defining Hidden and Unhidden Risks 188 The Myths and Mystique of the Sharpe Ratio 195 Unraveling Hidden Risks of Dynamic Leveraging 196 Summary 207 Further Reading and References 207 CHAPTER 10 Trend Following in Various Macroeconomic Environments 209 Interest Rate Environments 210 Regulatory Forces and Government Intervention 217 Postcrisis Recovery 221 Summary 228 Further Reading and References 229 PART V BENCHMARKING AND STYLE ANALYSIS CHAPTER 11 Return Dispersion 233 Strategy Classification and Return Dispersion 234 A Closer Look at Capital Allocation and Position Sizing 239 Return Dispersion from an Investor's Perspective 247 Empirical and Theoretical Considerations for Correlated Return Series 256 Summary 263 Further Reading and References 264 CHAPTER 12 Index and Style Factor Construction 265 Divergent Risk Taking Revisited 266 Defining a Divergent Trend Following Strategy 269 Constructing Style Factors 277 Characteristics of the Style Factors 282 Summary 286 Further Reading and References 287 CHAPTER 13 Benchmarking and Style Analysis 289 A Framework for Return-Based Style Analysis 290 Style Analysis for Individual CTA Managers 294 Sector Level Analysis of the Market Size Factor 299 Style Analysis Clarifications 304 Manager Selection and Allocation 310 Summary 313 Further Reading and References 313 PART VI TREND FOLLOWING IN AN INVESTMENT PORTFOLIO CHAPTER 14 Portfolio Perspectives on Trend Following 317 A Closer Look at Crisis Alpha 317 The Impact of Mark-to-Market on Correlation 326 Understanding Volatility Cyclicality 329 Summary 334 Further Reading and References 335 CHAPTER 15 Practicalities of Size, Liquidity, and Capacity 337 Does Size Matter? 337 The Impact of Less Liquid Markets 345 Summary 351 Appendix: Market Symbols and Names 352 Further Reading and References 352 CHAPTER 16 Diversifying the Diversifier 353 From Pure Trend Following to Multistrategy 354 Portfolio Analysis of the Move to Multistrategy 358 Hidden Risk of Leveraging Low-Volatility Strategies 368 Summary 374 Further Reading and References 374 CHAPTER 17 Dynamic Allocation to Trend Following 375 A Framework for Dynamic Allocation 375 Mean Reversion in Trend Following Return Series 377 Investigating Dynamic Allocation Strategies 384 Summary 389 Appendix: A Theoretical Analysis of Mean Reversion in Trend Following 390 Further Reading and References 393 Glossary 395 About the Authors 407 Index 409
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