Market Timing of CTAs: An Examination of Systematic CTAs vs. Discretionary CTAs

Can commodity futures be profitably traded with quantitative market timing strategies?

“…The interested reader should contact the authors for these results.9 We thank an anonymous referee for pointing this out to us. The interested reader should refer toKazemi and Li (2007) for more discussion on this.…”

Just a One-Trick Pony?An Analysis of CTA Risk and Return

“…The difficulty with self-classification is that it provides latitude for funds operating in the same classification to engage in divergent behavior, and evidence for mutual funds shows that many funds within the same self-classification have quite different returngenerating processes (Brown and Goetzmann [1997]). Our article complements Kazemi and Li [2009], who divided CTAs into systematic and discretionary subclassifications, showing the very different characteristics of these groups. In this article, we use clustering techniques to separate CTAs into classes based on differences in how the funds generate their returns.…”

“…In doing so, we add to the literature on the performance of CTAs, which is generally positive (e.g., Schneeweis, Savanayana, and McCarthy [1991]; Schneeweis, Spurgin, and McCarthy [1997]; Edwards [1998]; Liang [2004]; Gregoriou et al [2005]; Kazemi and Li [2009]; Gregoriou, Hübner, and Kooli [2010]; Arnold [2012];and Schneeweis, Spurgin, and Szado [2012]), with the exception of two early studies (Elton, Gruber, andRentzler [1987, 1990]) and a recent article (Bhardwaj, Gorton, and Rouwenhorst [2014]). A related literature also highlights the diversification benefits of CTAs as part of a broader institutional portfolio (e.g., Fung andHsieh [2000, 2001], Edwards and Caglayan [2001], and Mulvey [2012]), emphasizing the strong performance in equity and bond bear markets.…”

“…16 Our finding of low model explanatory power for CTAs is consistent with the empirical literature. For example, Kazemi and Li [2009], using a combination of sophisticated market, volatility timing, and options-based factors, reported a maximum adjusted R 2 for discretionary (systematic) CTAs of 18% (53%).…”

An Overview of Managed Futures' Performance: 1983 to Post‐2008 Credit Crisis

“…Busse (1999) extends the model to detect combined return and volatility timing. Kazemi and Li (2009) Elton, Gruber, and Rentzler (1987, 1989, 1990) who almost two decades earlier report that publicly-traded commodity funds did (1) fees accrue on a monthly basis and (2) high watermarks, when applicable, increase at the rate of return on T-bills. A high watermark applies when a managed futures manager only receives performance fees on that particular pool of invested money when its ending value is greater than its previous highest value.…”