Re-evaluating Short- and Long-Term Trend Factors in CTA Replication: A Bayesian Graphical Approach

Eric Benhamou, Jean-Jacques Ohana, Alban Etienne, B\'eatrice Guez, Ethan Setrouk and Thomas Jacquot

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Abstract: Commodity Trading Advisors (CTAs) have historically relied on trend-following rules that operate on vastly different horizons from long-term breakouts that capture major directional moves to short-term momentum signals that thrive in fast-moving markets. Despite a large body of work on trend following, the relative merits and interactions of short-versus long-term trend systems remain controversial. This paper adds to the debate by (i) dynamically decomposing CTA returns into short-term trend, long-term trend and market beta factors using a Bayesian graphical model, and (ii) showing how the blend of horizons shapes the strategy's risk-adjusted performance.

Date: 2025-07
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