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Acknowledgments | |
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Introduction: Why Invest in CTAs? | |
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What Kind of Hedge Fund Is a CTA? | |
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Why Do CTAs Make Money? | |
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How Much Should You Invest? | |
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What About the Risks? | |
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They're a Good Fit for Institutional Investors | |
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How the Book Is Structured | |
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A Practical Guide to the Industry | |
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Understanding Returns | |
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Risk and Cash Management | |
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Trading, Funding, and Notional Levels | |
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The Stability of Return Volatilities | |
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Basic Futures Mechanics | |
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A Typical Futures Portfolio | |
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Where Are the Data? | |
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The CTA Universe and Your Range of Choices | |
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The Fluid Composition of a Database | |
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How Backfilled Data Can Mislead | |
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Trading Programs and Lengths of Track Records | |
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Returns Net of Fees and Share Classes | |
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Sources of Data for Indexes of CTA Performance | |
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Structuring Your Investment: Frequently Asked Questions | |
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How Many Managers Should You Choose? | |
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What Are CTA Funds? | |
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What Are Multi-CTA Funds? | |
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What Are Managed Accounts? | |
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What Are Platforms? | |
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How Do You Compare and Contrast These Offerings? | |
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Who Regulates CTAs? | |
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How Are Structured Notes and Total Return Swaps Used by CTA Investors? | |
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What Are the Account Opening Procedures for a Managed Account? | |
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What Is the Minimum Investment in a CTA? | |
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What Does It Mean When a Manager Is Closed? | |
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What Are the Subscription Procedures for a Fund? | |
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Conclusion | |
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Building Blocks | |
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How Trend Following Works | |
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The Two Basic Strategies | |
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Making the Systems Work in Practice | |
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Transactions Costs | |
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Other Considerations | |
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Case Study: Two Models from 1994-2003 | |
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Rates of Return and Leverage | |
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Commodities and Capacity Constraints | |
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Market Environment and Give-Backs | |
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Two Benchmarks for Momentum Trading | |
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Data and the Trend-Following Sub-Index | |
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Trend-Following Models | |
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Laying the Groundwork for Analyzing Returns to Trend Following | |
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Constructing a Portfolio | |
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Simplifying Assumptions | |
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How Did the Models Do? | |
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The Newedge Trend Indicator | |
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Next Steps | |
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The Value of Daily Return Data | |
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How Good Are Daily Data? | |
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Estimating Return Volatility | |
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Distributions of Estimated Volatility | |
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Beware a False Sense of Confidence | |
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What If Underlying Returns Are Highly Skewed? | |
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Effect on Drawdown Distributions | |
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Every Drought Ends in a Rainstorm: Mean Reversion, Momentum, or Serial Independence? | |
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A Focus on Conditional Returns | |
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The Costs of Being Wrong about Timing Investments Can Be Substantial | |
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The Data | |
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The Test Tally | |
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Test for Serial Dependence: Autocorrelation | |
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Test for Serial Dependence: Runs | |
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Conditional Return Distributions | |
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Conclusion | |
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Understanding Drawdowns | |
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Drawdown Defined | |
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What Should They Look Like? | |
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What Forces Shape the Distributions? | |
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The Distribution of All Drawdowns | |
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The Distribution of Maximum Drawdowns | |
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The Core Drawdown Function | |
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Empirical Drawdown Distributions | |
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Reconciling Theoretical and Empirical Distributions | |
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Putting a Manager's Experience in Perspective | |
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What about Future Drawdowns? | |
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Further Questions | |
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How Stock Price Volatility Affects Returns | |
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A Look at Historical Returns | |
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Stock Price Volatility and Returns on the S&P 500 | |
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S&P 500 Volatility Dominates Market Volatility | |
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CTA Returns, Correlations, and Volatility | |
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Conclusion | |
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The Costs of Active Management | |
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Forgone Loss Carry-Forward | |
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Liquidation and Reinvestment | |
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Other Costs | |
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Conclusion | |
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Measuring Market Impact and Liquidity | |
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A Very Fat Data Set | |
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A Representative Market Maker | |
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Fitting the Curve to the Data | |
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Hidden Liquidity | |
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Estimating the Risk-Aversion Parameter | |
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Volume, Volatility, and Market Impact Profiles | |
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Where Do We Go from Here? | |
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Appendix | |
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Portfolio Construction | |
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Superstars versus Teamwork | |
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The Contribution of Low Correlation to Portfolio Performance | |
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How Reliable Are Correlation Estimates? | |
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The Contest | |
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Dropping and Adding Managers | |
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The Value of Incremental Knowledge about Return Distributions | |
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The Costs of Dropping and Adding Managers | |
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A New Look at Constructing Teamwork Portfolios | |
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Why Look Back? | |
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A Fresh Look at the Original Research | |
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Two New Approaches | |
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Comparing the Four Approaches | |
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Reviewing the Results | |
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Correlations and Holding Periods: The Research Basis for the Newedge AlternativeEdge Short-Term Traders Index | |
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Review of Previous Research | |
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Index Methodology and Construction | |
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How Low Are the Correlations? | |
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Why Are the Correlations Low? | |
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Holding Period and Return Correlation | |
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Why Are There Not More Short-Term Traders? | |
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Replicating the Index | |
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Cautions and Managing the Index | |
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Conclusion | |
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Appendix | |
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�There Are Known Unknowns�: The Drag of Imperfect Estimates | |
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Improving Risk-Adjusted Returns | |
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Throwing Out the Losers | |
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Due Diligence and Evaluation | |
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Bibliography | |
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About the Authors | |
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Index | |