Editor's Choice Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors

Geetesh Bhardwaj, Gary B. Gorton and K. Rouwenhorst

The Review of Financial Studies, 2014, vol. 27, issue 11, 3099-3132

Abstract: Investors face significant barriers in evaluating the performance of investment advisors. We focus on commodity trading advisors (CTAs) and show that from 1994 to 2012, CTA excess returns to investors (i.e., net of fees) were insignificantly different from zero while gross excess returns (i.e., before fees) were 6.1%, which implies that managers captured the performance in fees. Moreover, we find that CTAs display no alpha relative to simple future strategies in the public domain. Our results have implications for all hedge fund studies in that we find the typical adjustments for biases in the hedge fund databases still leave upward bias in fund performance.

Date: 2014
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The Review of Financial Studies is currently edited by Itay Goldstein

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