When it pays to follow the crowd: Strategy conformity and CTA performance

Prior research in hedge fund and mutual fund management finds a positive relation between portfolio distinctiveness and subsequent performance, suggesting that strategy differentiation is associated with superior skill. We find that commodity trading advisors (CTAs) with returns that correlate more...

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Bibliographic Details
Published in:	The journal of futures markets Vol. 41; no. 6; pp. 875 - 894
Main Authors:	Bollen, Nicolas P. B., Hutchinson, Mark C., O'Brien, John
Format:	Journal Article
Language:	English
Published:	Hoboken John Wiley & Sons, Inc 01-06-2021 Wiley Periodicals Inc
Subjects:	Conformity CTA Differentiation Distinctiveness futures contracts Hedge funds momentum Mutual funds Time series Trading
Online Access:	Get full text
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Summary:	Prior research in hedge fund and mutual fund management finds a positive relation between portfolio distinctiveness and subsequent performance, suggesting that strategy differentiation is associated with superior skill. We find that commodity trading advisors (CTAs) with returns that correlate more strongly with those of peers feature higher performance and are more highly exposed to a time series momentum factor. Strategy conformity appears to be a signal of managerial skill in CTAs, in contrast to hedge funds and mutual funds. These results indicate that a common trend following strategy drives CTA returns and that CTAs offer investors an opportunity to invest in momentum.
ISSN:	0270-7314 1096-9934
DOI:	10.1002/fut.22199