Two centuries of trend following

Yves Lempérière, Cyril Deremble, Philip Seager, Marc Potters and Jean-Philippe Bouchaud

Abstract

ABSTRACT

They use for their studies both futures time series that have existed since 1960 and spot time series that allow us to go back to 1800 on commodities and indexes. The overall t-statistic of the excess returns is approximately equal to five since 1960 and approximately equal to ten since 1800, after accounting for the overall upward drift of these markets. The effect is very stable, across both time and asset classes. It makes the existence of trends one of the most statistically significant anomalies in financial markets. When analyzing the trend-following signal further, the authors find a clear saturation effect for large signals, suggesting that fundamentalist traders do not attempt to resist "weak trends", but step in when their own signal becomes strong enough. Finally, they study the performance of trend following in the recent period. They find no sign of a statistical degradation of long trends, whereas shorter trends have significantly withered.