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When it pays to follow the crowd: Strategy conformity and CTA performance
Author(s) -
Bollen Nicolas P. B.,
Hutchinson Mark C.,
O'Brien John
Publication year - 2021
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22199
Subject(s) - optimal distinctiveness theory , hedge fund , conformity , portfolio , momentum (technical analysis) , trend following , trading strategy , economics , project portfolio management , financial economics , business , monetary economics , finance , psychology , management , social psychology , project management , psychotherapist
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.