Trend Following With Managed Futures [Book Review]

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Trend Following With Managed Futures: Book Review by Mark S. Rzepczynski, CFA Institute

Trend Following with Managed Futures: The Search for Crisis Alpha. 2014. Alex Greyserman and Kathryn Kaminski.

Price-based investment strategies have come a long way since 25 years ago, when the consensus was that markets were weak-form efficient, with past prices being unable to tell us anything about future behavior. Investors are warming to this active investment style approach, even though trend following has often been associated with “noise” traders and theoretical technical analysis. Some consider the empirical evidence supporting momentum trading to be an empirical puzzle that cannot be reconciled with theory, yet it has become such a popular topic with some finance researchers that it is referred to as the fourth factor alongside the market, size, and value factors of the Fama–French three-factor model.

Discussion of price- or return-based strategies has involved two types: momentum, the ability of past return performance to tell us something about relative future performance; and trend following, the ability of past prices to tell us something about absolute future price performance. This distinction is somewhat exaggerated when, in fact, the foundation is the same: Past price or return patterns have memory and will continue in the future, albeit with reversals in the long run.

The shift in thinking and the empirical support for trend and momentum trading have been growing steadily. Still, it is hard to pursue trend following as a pure investment style except through commodity trading advisers (CTAs), who are also broadly classified as managed futures funds. The style, trend following, and delivery mechanism, managed futures, have been inextricably tied together since the first CTA funds were launched. Hence, this new book by Alex Greyserman of International Standard Asset Management and Kathryn Kaminski of SIFR (Institute for Financial Research) on trend following and managed futures is timely and important; it provides a strong theoretical and empirical foundation for the strategy and the hedge fund delivery mechanism.

Little has been written about this style for the trained financial professional. (One of the best single sources of information on trend following is author Michael Covel’s website.) A significant number of books have been published on trend following, but Trend Following with Managed Futures: The Search for Crisis Alpha changes the standard for the discussion by using the language and analytical techniques of empirical finance to fully analyze the case for this strategy. Language and the method for marshaling evidence matter when advocating to a specific audience. This book provides the context and empirical evidence to make almost anyone who was trained in a master’s finance program accept the efficacy of trend following. The authors’ exhaustive analysis details every aspect of how trend following is used in an investment program. It provides a clear road map for discussing and analyzing an alternative investment style.

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Trend Following with Managed Futures – Description

Trend Following with Managed Futures: The Search for Crisis Alpha by Alex Greyserman and Kathryn Kaminski.

An all-inclusive guide to trend following

As more and more savvy investors move into the space, trend following has become one of the most popular investment strategies. Written for investors and investment managers, Trend Following with Managed Futures: The Search for Crisis Alpha 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. The book examines relevant topics such as:

  • Trend following as an alternative asset class
  • Benchmarking and factor decomposition
  • Applications for trend following in an investment portfolio
  • And many more

By focusing on the investor perspective, Trend Following with Managed Futures is a groundbreaking and invaluable resource for anyone interested in modern systematic trend following.

Trend Following with Managed Futures – Review

The authors have raised the standard for discussion concerning trend following. The hedge fund industry should take note, and all strategies should be given the same level of attention and detailed review. For investors who are contemplating a trend-following managed futures investment, this book should be the first place to go in getting up to speed. – CFA Institute

From the Back Cover

Praise For Trend Following With Managed Futures

“WOW!! Everything you ever wanted to know about trend following over the past 800 years, from the theoretical to the practical, can be found in this book. If you are contemplating an allocation to or redemption from CTAs, you should read this book first.” – Ed Robertiello, CFA, Senior Portfolio Manager, Absolute Return Strategies, CalPERS

“Alex Greyserman and Kathryn Kaminski have provided a full insight into trend following models in simple language and with examples throughout this book. They have demystified the black box notion associated with managed futures/trend followers.” – Romule Nohasiarisoa, CFA, Senior Hedge Fund Analyst, PGGM Pension Fund, Netherlands

“Alex and Kathryn are prolific researchers in the world of managed futures and manager selection. This work is a significant contribution to the understanding of CTA performance and is a must read for anyone interested in analyzing CTA returns.” – Adam Duncan, Senior Investment Director, Cambridge Associates

“This book is a fascinating and timely examination of an investment strategy that, for too long, has dwelt in the shadows of the financial industry. Every serious investor should read this book!” – Andrew Lo, PhD, Charles E. and Susan T. Harris Professor of Finance, MIT Sloan School of Management

“This is a must have on the bookshelf of any institutional investor. Alex and Kathryn bring academic rigor to CTA investing in an easily digestible and understandable framework.” – Lawrence Kissko, Head of Macro and Quantitative Strategies, Hermes BPK Partners

Trend Following with Managed Futures: The Search for Crisis Alpha by Alex Greyserman and Kathryn Kaminski.

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