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Optimal f and Portfolio Return Optimisation in US Futures Markets

  • John Anderson
  • Robert W Faff

While considerable evidence has been produced concerning the efficacy of trading rules in futures markets, the results have generally not allowed for the reinvestment of profits as might be observed for real traders. Similarly, the determination of the appropriate capital allocation required per futures contract traded has been largely unstructured so making reported percentage returns questionable. This paper provides evidence of the profitability of a simple and publicly available trading rule in five futures markets but more importantly incorporates the ability to reinvest any profits via the ‘Optimal f’ technique described by Vince (1990). The results indicate that money management in speculative futures trading plays a more important role in trading rule profitability than previously considered by providing dramatic differences in profitability depending on how aggressively the trader capitalises each futures contract.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20No%20133.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 133.

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Date of creation: 20 Jan 2003
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Handle: RePEc:qut:dpaper:133
Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
Web page: http://www.bus.qut.edu.au/faculty/economics/
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  1. Stevenson, Richard A & Bear, Robert M, 1970. "Commodity Futures: Trends or Random Walks?," Journal of Finance, American Finance Association, vol. 25(1), pages 65-81, March.
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