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Index
Absolute return strategy, managedfutures as, 184ADF test, see Augmented Dickey-FullertestAdministrative fee, 40–44Agriculture portfolios, 206–209Alpha, 82–83, 124, 125Alternative investments:allocation of, 11–15downside risk protection with, seeDownside return protectionAnti-money laundering provisions, 241APRA (Australian Prudential Regulation Authority), 260ARMA models, see Auto-regressivemoving average modelsAsian currency crisis, 107, 108, 126,127Asset class(es), 7allocation of, 358–366comparison of risk with, 361, 362equity markets as, 221managed futures as, 6upper/lower limits for, 363Asset diversifiers, 338Augmented Dickey-Fuller (ADF) test,326, 328, 329, 331, 369–370Australian Prudential RegulationAuthority (APRA), 260Australian regulatory model, 259–273for collateralized synthetic obligations, 265–266and definition of fiduciary futuresproducts, 264and fiduciary futures products asfinancial products, 269–270and fiduciary futures products inAustralia, 261–264and futures market in Australia,262–263
for individually managed futuresaccounts, 266–267, 270–272for managed futures funds, 264–265and registration of fiduciary futuresproducts, 267–269Auto-regressive moving average(ARMA) models, 367–376Backfilling bias, 19Barclay Commodity Trading Index,185–187, 189–191, 193, 195–196Barclay CTA Index, 19, 107–113, 115,117, 119–121, 127, 308–309Barclay Currency Traders Index, 107,108, 110–113, 115, 117, 119, 122Barclay Discretionary Traders Index,107, 108, 110–113, 115, 117,119–123, 127Barclay Diversified Traders Index, 107,108, 110–113, 115, 117, 119–121,127, 185, 187, 190, 191, 194, 197Barclay Financial and Metal TradersIndex, 107–109, 111–113, 115,117, 119–121, 127Barclay Systematic Traders Index,107–109, 112–113, 115, 117,119–121, 127, 185, 187, 188,190, 191, 194, 197Barclay Trading Group, Ltd., 51Barclay Trading Group database,51–77Bear markets, 107–108Benchmarking, 82–84. See also Performance (of CTAs)in contingent claim approach, 294DEA vs., 129Edhec CTA Global Index for, 21–29selection of index for, 19Beta-squared coefficient, 86–87Bias, 18–19, 26, 56–58
417
418
Bonds, 7Bull markets, 107–108Capital asset pricing model (CAPM),83, 84n9, 85, 189CFTC, see Commodity Futures TradingCommissionChase Physical Commodity Index(CPCI), 229CISDM Equally Weighted TradingAdvisor Qualified Universe Index(CISDM CTA), 370–374Coffee market, 155–160, 163–165,169–181Collateralized synthetic obligations(CSOs), 265–266Combination-term CTAs, 80n1Commission, CTA, 40–44Commodity futures, 7, 229–231. Seealso Design of commodity futurestrading programCommodity Futures Trading Commission (CFTC), 154–155, 240–241,260n1, 260n2, 339, 387Commodity trading advisors (CTAs),xxv. See also Managed futures;specific topicsbackfilling bias for hedge funds vs.,19benefits of, xxvcharacteristics of, 361–362comparison of hedge funds, fund offunds and, 339–340compensation of, 248–258countertrend, 80in CSFB/Tremont Managed FuturesIndex, 391data providers for, 51discretionary, 80, 242–243efficiency of, in portfolio context,24–26framework for assessing, see Threedimensional frameworkhedge funds vs., xxv, 1and increased price volatility, seeMarket volatilityindex heterogeneity for, 19–21key performance drivers of, 26–29major index providers for, 208–209
INDEX
methodologies employed by,242–244quantitative description of,308–312strategies for, see Strategies, CTAstyles of, 80, 287–288survivorship bias for hedge funds vs.,19systematic, 80, 243–244, 387technical vs. fundamental analysis by,242trend-following, 7, 80, 244Compensation of CTAs, 248–258Barclay Trading Group data on,251–253performance and, 253–257and performance persistence,40–44structure of, 249–251Contingent claim-based performanceevaluation, 296–297Contingent claim performanceapproach, 294–306efficiency gain/loss measure in,297–299moment-based efficiency measure in,295–297results of, 300–305TradeView market data in, 300Corn market, 155–160, 163–165,169–181Cotton market, 155–160, 163–165,169–181Countertrend CTAs, 80CPCI (Chase Physical CommodityIndex), 229Credit Suisse First Boston(CSFB)Tremont Managed FuturesIndex, 308–309, 390–397Crises, market, 107, 108Cross-efficiency model (DEA), 131,135–145Crude oil market, 155–160, 163–165,169–181CSFB/Tremont Index, see Credit SuisseFirst Boston Tremont ManagedFutures IndexCSOs, see Collateralized synthetic obligations
Index
CTAs, see Commodity trading advisorsCTA Global Index, 58–74, 119–121CTA Qualified Universe index (CTAQU), 361, 362, 364Currency portfolios, 209–212Daniel B. Stark & Co. database, 8Data envelopment analysis (DEA),79–104background of, 95–97Barclay Trading Group/BurlingtonHall Asset Management data for,137–138bases for performance evaluation in,87CISDM Alternative InvestmentDatabase data for, 87–95cross-efficiency model, 135–138efficiency score in, 80, 81, 132–133empirical results of, 138–146performance evaluation criteria in,80power of, 131–132results of, 98–104and risk measures in performanceevaluation, 82–87risk-minimizing design of, 81simple efficiency model, 133–135,138in study of CTA performance,97–98Tobit regression model in, 98DD (downside deviation), 86Decile classification:and correlation coefficients forperformance, 349–351and dissolution frequencies, 74–77and performance of funds, 67–74Decision-making units (DMUs),performance of, 95–97Design of commodity futures tradingprogram, 277–293leverage level, 287–289and overall portfolio design,289–292portfolio construction, 282–284risk management, 284–287trade construction, 281–282trade discovery, 277–281
419
Deutsche mark market, 155–160,163–165, 169–181Discretion, performance persistenceand, 40–44Discretionary CTAs, 80, 242–243Dissolution frequencies, 74–77Distributed performance evaluation,295–296Diversification:for CTA portfolio, 289, 290, 292for equities portfolio, 289, 290equity, 221for hedge fund portfolio, 291, 292and interdependence of riskmeasures, 212–214for risk management, 244space, 388strategies for, see Strategies for diversificationtime, 385–398. See also Threedimensional frameworkDiversifiers, asset, 338–338DJ-AIGCI, see Dow-Jones/AIGCommodity IndexDMUs, see Decision-making units,performance ofDollars under management, 40–44Dow-Jones/AIG Commodity Index(DJ-AIGCI), 229–231Down markets, CTAs in, xxv, 1Downside deviation (DD), 86Downside return protection, 220–232commodity futures for, 229–231with CTAs vs. hedge funds, 50description of, 221–224hedge funds for, 224–226managed futures for, 226–229Edhec CTA Global Index, 19, 21–29Efficiency gain/loss measure, 297–299Efficiency score (DEA), 80, 81,98–104, 132–133Efficient frontier (DEA), 131, 132Emerging CTAs, 81Equity markets, 220–221Excess replicating return (ERR),300–302Extreme events, performance during,126–127, 137, 152
420
Feedback trading strategies, 153Feedback trading tests, 168, 172–179Fiduciary futures products (Australia),261–27050/50 investors, 9–10, 12–14, 16Financial futures, 7Financial portfolios, 212, 215–216Fundamental analysis, 242Fund of funds, 339–340Fund size, 87Futures. See also Managed futuresavailability of information on,238coffee market, 155–160, 163–165,169–181corn market, 155–160, 163–165,169–181cotton market, 155–160, 163–165,169–181crude oil market, 155–160, 163–165,169–181deutsche mark market, 155–160,163–165, 169–181eurodollar market, 155–160,163–165, 169–181exchange-based nature of, 238–239gold market, 155–160, 163–165,169–181live hogs market, 155–160, 163–165,169–181natural gas market, 155–160,163–165, 169–181soybeans market, 155–160,163–165, 169–181S&P 500, 155–160, 163–165,169–181traded by CTAs, 7Treasury bonds market, 155–160,163–165, 169–181Generalized Treynor Ratio (GTR), 124,125Goldman Sachs Commodity Index(GSCI), 229, 289Gold market, 155–160, 163–165,169–181GSCI, see Goldman Sachs CommodityIndexGTR, see Generalized Treynor Ratio
INDEX
Hedge funds:in alternatives allocation, 11–15backfilling bias for CTAs vs., 19comparison of CTAs, fund of fundsand, 339–340CTAs vs., xxv, 1downside return protection for,224–226elimination of negative skewnessfrom, 15–16estimating returns on, 18–19investment style and portfolio returnswith, 9–10large, market volatility and, seeMarket volatilitymanaged futures as subset of, 80managed futures combined with,11risk and dependence characteristicsof, 5–6short-volatility strategies for, 198survivorship bias for CTAs vs., 19Tremont TASS database for, 7Hedgers, 241Herding behavior, 152–153IMAs, see Individually managedaccountsIncentive fees, 40–44, 249–251Indices. See also specific indicesbiases in, 19comparative performance of, 21–24correlation between, 18–19heterogeneity of, 19–21portfolio of, 21Individually managed accounts (IMAs),242, 261, 266–267, 270–272Ineffective diversifiers, 338Information Ratio (IR), 124, 125Interbank, 40–44Interdependence of risk measures,203–219for agriculture portfolios, 206–209CISDM data for, 206for diversified portfolios, 212–214empirical results of, 206for financial portfolios, 212,215–216methodology for study of, 205–206
Index
review of literature on, 203–205for stock portfolios, 212, 217–219Investing in managed futures, 235–247and hedgers vs. speculators, 241methods of investing, 6–7minimum investment requirements, 7portfolio structure for, 241–242regulatory issues with, 240–241for risk management, 244–245timing considerations for, 245–247IR, see Information RatioLehman Aggregate Bond Index, 369Lehman Global Bond Index, 21–29Lehman Global Index, 340, 342–348Lehman Global Treasury Index, 24–26Lehman High Yield Index, 24–26Lehman Investment Grade Index,24–26Lehman U.S. Aggregate Index, 340,342–348Lehman U.S. Treasury Index, 27–29Leverage, 245Leverage level step (trading program),287–289Live hogs market, 155–160, 163–165,169–181Long-term CTAs, 80n1, 245Long volatility strategies, 183–202demonstration of, 185–188fitting regression line, 189–191mimicking portfolios of strategies,192–195risk management using, 198–201and value at risk, 195–198Losses, investing with CTAs after,45–47Macroportfolio hedging, 286–287Managed Account Reports, 51Managed futures. See also Commoditytrading advisors; specific topicsadvantages of, 237–238in alternatives allocation, 11–15and asset allocation, 24–26as asset class, 6for downside return protection,226–229growth of, 235, 236
421
hedge funds combined with, 11index heterogeneity of, 19industry review, 184–185investing in, 235–247investment style and portfolio returnswith, 9–10mutual funds vs., 239performance measures for, 79–80performance persistence of, seePerformance persistenceand portfolio performance, 237recent performance of, 235, 236return data for, 8riskiness of, 385skewness reduction with, 15–16as subset of hedge funds, 80trend-following nature of, 7ways to invest in, 6–7Managed futures funds (Australia),261, 264–265Managed money accounts (MMA),155. See also Market volatilityManagement fees, 249–251Manager of managers (MOM), 7Margin, 40–44MarHedge CTA indices, 240Market conditions (1990-2003),105–128constructing empirically valid modelsof, 118–123data and sample period, 107–113during extreme events, 126–127measurement of performance,124–127multifactor model of, 111, 114–115multi-moment model of, 116–118return-generating processes, 111subperiods of, 107Market crises, 107, 108Market volatility, 151–182data on, 154–156and descriptive analysis of tradingbehavior, 156–161empirical studies related to,152–154positive feedback trading tests, 168,172–179profitability tests, 175, 180–181variance ratio tests, 166–171
422
Market volatility continuedand volume–market volatility relationship, 164–181and volume–price volatility relationship, 161–164Markowitz, Harry, xxvMAR (minimal accepted return), 86Mean-modified value at risk framework, 358–366Mean-variance sufficiency, 85–87Medium-term CTAs, 80n1Merger arbitrage, 198–201Mimicking portfolios, 192–195Minimal accepted return (MAR), 86MLMI, see Mount Lucas Management