AQR explores how combining systematic trend-following with opportunistic macro strategies can improve global macro investing outcomes. The paper argues markets both underreact and overreact to fundamentals, creating persistent opportunities. Over a 25-year sample, integrating both approaches appears to enhance diversification and deliver more consistent risk-adjusted returns across environments.
Fundamental Trends and Dislocated Markets
AQR
Chris Doheny
Research
28 Pages
Key Takeaways
Integrated Macro Edge: A combined strategy over 25 years shows higher Sharpe ratios and more stable returns than standalone approaches, improving consistency across multiple economic regimes.
Behavioral Mispricing Drivers: Markets exhibit underreaction and overreaction patterns, with dislocations emerging episodically and offering alpha opportunities during extreme deviations from fundamentals.
Diversification Benefits Persist: Correlations to traditional assets remain low, often below 0.3, suggesting meaningful portfolio diversification versus equities and bonds.
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