Two centuries of trend following
By Y. Lempérière, C. Deremble, P. Seager, Marc Potters, Jean-Philippe Bouchaud. 2014
92 citations recorded by the source corpus.
We establish the existence of anomalous excess returns based on trend following strategies across four asset classes (commodities, currencies, stock indices, bonds) and over very long time scales. We use for our studies both futures time series, that exist since 1960, and spot time series that allow us to go back to 1800 on commodities and indices. The overall t-stat of the excess returns is $\approx 5$ since 1960 and $\approx 10$ since 1800, after accounting for the overall upward drift of these markets. The effect is very stable, both across time and asset classes. It makes the existence of trends one of the most statistically significant anomalies in financial markets. When analyzing the trend following signal further, we find a clear saturation effect for large signals, suggesting that fundamentalist traders do not attempt to resist "weak trends", but step in when their own signal becomes strong enough. Finally, we study the performance of trend following in the recent period. We find no sign of a statistical degradation of long trends, whereas shorter trends have significantly withered.
Subfields: Economics and Econometrics, Finance
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Citations in the corpus
- Enhancing Time-Series Momentum Strategies Using Deep Neural Networks (2019, neutral): “Momentum as a risk premium in finance has been extensively documented in the academic literature, with evidence of persistent abnormal returns demonstrated across a range of asset classes, prediction horizons and time periods [2, 3, 4].”
- Understanding the Momentum Risk Premium: An In-Depth Journey Through Trend-Following Strategies (2017, background): “Moreover, carry, momentum and value exhibit different skewness patterns (Lempérière et al., 2014).”