Trend Following with Managed Futures offers an insightful overview of both the basics and theoretical foundations for trend following. The book also includes in-depth coverage of more advanced technical aspects of systematic trend following. By focusing on the investor perspective, this book is a groundbreaking and invaluable resource for anyone interested in modern systematic trend following.
The book begins by telling the tale of trend following throughout the ages. A multi-centennial view of the strategy from a historical perspective sets the stage for the deeper more detailed analysis of modern systematic trend following in the remainder of the book. The book is divided into six core sections:
I. Historical Perspectives: Using a unique 800‐year dataset, trend following is examined from a multicentury perspective.
II. Introduction to Trend Following Basics: The goal of this section is to explain trend following system construction and the mechanics of trading in futures markets. Futures markets, futures trading, and the managed futures industry are reviewed. The basic building blocks of a modern systematic trend following system are discussed.
III. Theoretical Foundations: This section provides theoretical motivation for understanding why trend following works. The Adaptive Markets Hypothesis (AMH) is introduced and applied to derive and clarify the concept of crisis alpha. The concepts of divergent and convergent risk‐taking strategies are introduced. This section explains the concept of market divergence and its role in trend following performance. Given that trend following is applied in futures markets, the role of interest rates and the roll yield are also discussed.
IV. Trend Following as an Alternative Asset Class: Trend following is discussed as an alternative asset class. The key properties of trend following returns are discussed, including performance measures, crisis alpha, crisis beta, drawdowns, correlation, and volatility. The concept of hidden and unhidden risks, leverage risk with dynamic leveraging, and macro environments are explained.
V. Benchmarking and Style Analysis: This section discusses return dispersion, benchmarking, and style analysis. The idiosyncratic effects of parameter selection are linked to return dispersion in trend following. A divergent trend following index and three construction style factors are introduced. The divergent trend following index and style factors are used to demonstrate the applications of return based style analysis. Performance attribution, monitoring, appropriate benchmarking, manager selection, and manager allocation are applications of style analysis.
VI. Trend Following in an Investment Portfolio: This section discusses trend following from the investor’s perspective and advanced topics based on common themes earlier in the book. Topics include the role of equity markets in crisis alpha, the role of mark‐to‐market on inter‐manager correlation, aspects of size, liquidity, and capacity, as well as the move from pure trend following to multistrategy. Finally dynamic allocation, or the question of when to invest in trend following, is discussed.
- A Multicentennial View of Trend Following
- Review of Futures Markets and Futures Trading
- Systematic Trend Following Basics
- Adaptive Markets and Trend Following
- Divergence and the Tradability of Trend
- The Role of Interest Rates and the Roll Yield
- Properties of Trend Following Returns
- Characteristics of Drawdowns, Volatility, and Correlation
- The Hidden and Unhidden Risks of Trend Following
- Trend Following in Various Macroeconomic Environments
- Return Dispersion
- Index and Style Factor Construction
- Benchmarking and Style Analysis
- Portfolio Perspectives on Trend Following
- Practicalities of Size, Liquidity, and Capacity
- Diversifying the Diversifier
- Dynamic Allocation to Trend Following
Trend Following with Managed Futures: The Search for Crisis Alpha By Alex Greyserman, Kathryn Kaminski pdf