Trend-Following Hedge Funds and Multi-Period Asset Allocation

Selected hedge funds employ trend-following strategies in an attempt to achieve superior risk adjusted returns.

Author(s):

Dries Darius, Aytac Ilhan, John Mulvey, Ronnie Sircar

Department of Operations Research & Financial Engineering, Princeton University

Koray D. Simsek,

Associate professor of Finance, EDHEC Business SchoolMember of the EDHEC-Risk and Asset Management Research Centre

We employ a lookback straddle approach for evaluating the return characteristics of a trend following strategy. The strategies can improve investor performance in the context of a multi-period dynamic portfolio model. The gains are achieved by taking advantage of the funds' high level of volatility. A set of empirical results confirms the advantages of the lookback straddle for investors at the top end of the multi-period efficient frontier.

Type: Working paper
Date: le 16/09/2002
Research Cluster : Finance

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