{"title":"The Friend of Your Trend","authors":"W. Lee","doi":"10.52354/JSI.1.1.III","DOIUrl":null,"url":null,"abstract":"Standard performance attribution to beta and alpha is not simple without full transparency into the investment process. This article develops an analytical framework to shed light on ex-ante stylized characteristics of a simple trend following strategy. Our analytical results show that rewards from the trend following strategy embed different degrees of underlying asset beta, which are determined by the asset’s return-to-volatility ratio, in addition to the trending behaviors that the strategy is built to harvest. We compare the results to ex-post realized returns-based style analysis of a CTA index. We discuss practical implications of our results with respect to fees and allocations to trend following strategies.","PeriodicalId":30123,"journal":{"name":"Journal of Systems Integration","volume":"1 1","pages":"30-51"},"PeriodicalIF":0.0000,"publicationDate":"2021-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Systems Integration","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.52354/JSI.1.1.III","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
Standard performance attribution to beta and alpha is not simple without full transparency into the investment process. This article develops an analytical framework to shed light on ex-ante stylized characteristics of a simple trend following strategy. Our analytical results show that rewards from the trend following strategy embed different degrees of underlying asset beta, which are determined by the asset’s return-to-volatility ratio, in addition to the trending behaviors that the strategy is built to harvest. We compare the results to ex-post realized returns-based style analysis of a CTA index. We discuss practical implications of our results with respect to fees and allocations to trend following strategies.