Testing Why Trend-Following Returns Have Weakened Over Time
Summary
This analysis asks whether weakening trend-following results reflect a cohort effect, deterioration in individual instruments, or a broader change in market conditions. It focuses on several exponentially weighted moving-average crossover speeds, starting with a fast signal, and considers futures instruments entering the historical dataset at different times. The author contrasts the possibility that newer instruments perform worse with the possibility that all instruments weaken together across later periods.
The stated conclusion is that the observed momentum decay appears attributable to general environmental effects rather than instrument age or cohort composition. On that interpretation, dropping newer or older markets would not solve the problem, while diversification across instruments remains useful when a signal weakens. The analysis notes that returns are before trading costs and that faster crossovers had particularly poor deterioration in the author’s earlier work. The text does not include the charts or numerical breakdowns needed to independently assess the comparison, and it cautions that the recent weakness could be temporary. It also briefly signals a separate carry analysis without reporting its results.
Key ideas
- The analysis compares cohort effects, instrument decay, and broad environmental change as explanations for weaker trend performance.
- It examines several moving-average crossover speeds across futures instruments with different history lengths.
- The author attributes the apparent deterioration primarily to changing market conditions.
- Restricting the universe by instrument age is not recommended as a remedy in this account.
- Returns are reported before costs, and the evidence shown in the text is insufficient for independent verification.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.