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Two centuries of trend following

Author

Listed:
  • Y. Lemp'eri`ere
  • C. Deremble
  • P. Seager
  • M. Potters
  • J. P. Bouchaud

Abstract

We establish the existence of anomalous excess returns based on trend following strategies across four asset classes (commodities, currencies, stock indices, bonds) and over very long time scales. We use for our studies both futures time series, that exist since 1960, and spot time series that allow us to go back to 1800 on commodities and indices. The overall t-stat of the excess returns is $\approx 5$ since 1960 and $\approx 10$ since 1800, after accounting for the overall upward drift of these markets. The effect is very stable, both across time and asset classes. It makes the existence of trends one of the most statistically significant anomalies in financial markets. When analyzing the trend following signal further, we find a clear saturation effect for large signals, suggesting that fundamentalist traders do not attempt to resist "weak trends", but step in when their own signal becomes strong enough. Finally, we study the performance of trend following in the recent period. We find no sign of a statistical degradation of long trends, whereas shorter trends have significantly withered.

Suggested Citation

  • Y. Lemp'eri`ere & C. Deremble & P. Seager & M. Potters & J. P. Bouchaud, 2014. "Two centuries of trend following," Papers 1404.3274, arXiv.org.
  • Handle: RePEc:arx:papers:1404.3274
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    References listed on IDEAS

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    Cited by:

    1. Achim BACKHAUS & Aliya ZHAKANOVA ISIKSAL, 2016. "The Impact of Momentum Factors on Multi Asset Portfolio," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 146-169, December.
    2. Ahmed Bel Hadj Ayed & Gr'egoire Loeper & Fr'ed'eric Abergel, 2015. "Forecasting trends with asset prices," Papers 1504.03934, arXiv.org, revised Apr 2015.
    3. J. P. Bouchaud & S. Ciliberti & Y. Lemp'eri`ere & A. Majewski & P. Seager & K. Sin Ronia, 2017. "Black was right: Price is within a factor 2 of Value," Papers 1711.04717, arXiv.org, revised Nov 2017.
    4. Tung-Lam Dao & Daniel Hoehener & Yves Lemp'eri`ere & Trung-Tu Nguyen & Philip Seager & Jean-Philippe Bouchaud, 2017. "Trends and Risk Premia: Update and Additional Plots," Papers 1708.07637, arXiv.org.
    5. Raphael Benichou & Yves Lemp'eri`ere & Emmanuel S'eri'e & Julien Kockelkoren & Philip Seager & Jean-Philippe Bouchaud & Marc Potters, 2016. "Agnostic Risk Parity: Taming Known and Unknown-Unknowns," Papers 1610.08818, arXiv.org.

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