The Long and Short of Trend Followers

Abstract

The authors propose the use of short and long portfolios to analyze the risk and return characteristics of trend-following strategies. They present evidence for the asymmetric profitability of trend-following strategies, showing that returns to the long side are more profitable. They also find that the exposure of CTAs to the long and short sides of trend-following strategies have become more biased toward long positions. The main lesson of the study is that the long and short sides should be differentiated in an analysis of dynamic investment strategies. TOPICS:Portfolio construction, commodities, statistical methods, performance measurement