Futures market liquidity and the trading cost of trend following strategies

Serge Darolles and Charles Chevalier
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Serge Darolles: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Charles Chevalier: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We use a unique dataset reporting the trading of an institutional asset manager implementingtrend following strategies to estimate the associated transaction costs. With information both atthe trade and the fund levels, we disentangle the sources of these costs by differentiating individualexecution quality from managerial decisions. We show that the disappointing performances observed for trend following these recent years are explained by a drop in the volatility of the futuresmarkets these strategies generally trade due to an higher proportion of fixed costs

Keywords: Trading Costs; Market Impact; Liquidity; Trend Following (search for similar items in EconPapers)
Date: 2022-06
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Published in Quantitative Finance and Financial Econometrics (QFFE 2022), Jun 2022, Marseille, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04581741

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