Replicating CTA Positioning: An Improved Method

Abstract

Analysis of systematic strategies is a current topic of focus, centering on the impact these strategies have on various financial markets. Risk parity, option overwriting, volatility targeted equity indices, and trend following strategies receive the majority of this attention. In this paper, we focus on the dynamic trading of trend following strategies and detail an improved method for estimating their actions across markets.

A simple replication model employed on 16 futures markets explains over 75% of the variation in a trend following benchmark.

This replication model is able to estimate trend follower positions without lag.

Using estimates of total funds allocated to trend following managers, we can use our replication model to estimate positions by specific market and the expected trading flows when individual markets move.

Keywords: Trend following, managed futures

JEL Classification: G1