Quote from Trend Following:
Trend following white papers:
Does trend following work on stocks? (PDF)
Graham Capital trend following overview. (PDF)
Origins of trend following. (PDF)
Patterns in trend following managers. (PDF)
David Harding on Sharpe ratio. (PDF)
Some may have seen these, but many have not. They offer good food for thought at a time when so many are chasing the daily news headline and or the fundamental of the day.
More to come.
Those are not academic white papers. They are marketing pieces made in the guise of research. They clearly only promote the "book" and strategy of the funds who sponsored them. sorry to say but they hold very little if any weight.
here is a solid place to start if you are sincerely interested in teh subject:
http://www.dailyspeculations.com/vic/trend_following.html
Why I Don't Believe in Trends
I am often asked why I don�t believe in trends despite the great profits of some selected trend followers. The main reason is that standard measures in statistics like the serial correlation coefficient or runs or Goodman tests for m dependent time series, are designed to test trends. I have not found many market series that show consistent departures from randomness on such tests. Nor more importantly, have I ever found a series that looks like it has a trend, whether it be a moving average or lagged momentum type, that doesn�t show some serious evidence for non-randomness as measured by the above mentioned tests.
More terribly, the human mind is very good and capable of finding order in chaos and randomness. And what looks like order and trend is often completely consistent with the above.
Two main points that lead to these optical illusions are the fact that the variance of the sum of n random components is n times the variance of a given random component. So as you get further along in time from the starting point of a random series, the movements away from the beginning seem to be very big and trendy, albeit strictly consistent with randomness. (e.g. see chart below, which is a simulated price process where returns are independently normally distributed with mean 0 and standard deviation of 1).
The second main area of deriving order from chance is the human mind's ability to make multiple comparisons. When it looks at a series, it is very good at finding a million stopping and starting points which taken in isolation do indeed show local non-random trends. However, with all these stopping and starting points, it's bound to happen that the straight line between the two points will seem to "explain".
I am well aware that some markets do show trends (in retrospect), and allow back tested systems to work. But merely because it worked back tested, why should the markets be so kind as to allow those who can draw a straight line between two points to make money in the future. Mr. Bacon would argue against it in the field of horse racing. Presumably the wisdom of the market is at least equal to the deceptive practices of the trainers and horsemen.
Well then, how do I explain the great results of the selected trend followers compared to my own? Those results that the great promoters of systems, seminars and books hold up to my discredit and shame. Well , more power to them. I guess I will always be scratching the back of such well to dos
http://www.dailyspeculations.com/vic/trend_following.html
