Abstract
We propose a new asset-based factor that relies on aggregating momentum signals over different horizons. Aggregating signals this way captures assets’ trend signal strength, thereby addressing a limitation in existing time series momentum strategies. Our factor mimics a trend-following manager that increases exposure to markets where trends develop and decreases exposure to markets where trends fade. Taking into account a number of practical implementation issues, we found that our proposed factor performs better at replicating the stylized facts of Commodity Trading Advisors’ returns than previous methods and allows a more meaningful assessment of fund alpha.
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