A Century of Evidence on Trend-Following Investing
Read the paperopens papers.ssrn.com in a new tab
What they found
The authors built a simple time-series momentum strategy (1, 3, and 12 month trend signals, volatility-scaled) across 67 markets in four asset classes and ran it back to 1880 using historical futures and spot data. The strategy was profitable in every decade, with modest correlation to stocks and bonds, and made money during most of the largest equity drawdowns of the past century. They also quantify how much of the strategy's return would have been eaten by realistic fees and costs at different points in time.
What you can use
- Trend following has one of the longest track records of any strategy, with positive returns in every decade since the 1880s.
- Its best moments have historically come during prolonged bear markets, which is the property that makes it a portfolio diversifier.
- The strategy also has multi-year stretches of flat or negative returns; sticking with it through those is the hard part.
Caveats
Pre-1970s data is reconstructed and partly hypothetical; the authors are at AQR, which runs trend-following funds. Results are for a broad diversified portfolio, not a single market.
Tags: momentum, trend-following, long-history, multi-asset
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.