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- Title
Isolating Trend-Following Alpha Effects of CTA Funds.
- Authors
Mackey, Scott
- Abstract
The purpose of this research is to examine specific market conditions, trending versus non-trending markets, in which Commodity Trading Advisor funds (CTAs) add significant positive alpha. While previous researchers have documented that a trend-following strategy is dominant for most CTAs, this research seeks to test specific market conditions during which CTAs actually earn positive alpha. Two different modeling alternatives are proposed but both follow the same basic hypothesis: CTAs will generate greater alpha due to trend-following ability in markets that exhibit well-defined trends rather than in non-trending markets. It may still be true that CTAs still earn positive alpha during non-trending or "consolidating" markets but it is expected that this value will be lower than the alpha contribution to "trending" markets. Another goal is to define whether markets are trending upward or downward to determine whether or not CTAs do or do not add positive alpha during both directional trends due to the long/short and/or options positions they can utilize. This line of research should improve our understanding of the specific market conditions during which CTAs add positive alpha and can improve the risk-adjusted performance of traditional investment portfolios. The research is ongoing and is currently in the data collection phase, however, initial results are expected by the 2012 NBEA Conference date for presentation.
- Publication
Proceedings of the Northeast Business & Economics Association, 2012, p204
- ISSN
1936-203X
- Publication type
Conference Proceeding