Does Trend Following Still Work on Stocks

Longboard Asset Management

Cole Wilcox, Alberto Pagani, Carlo Zarattini

Research

19 Pages

The paper revisits the efficacy of trend-following strategies on U.S. stocks, extending their analysis from 1950 through November 2024. Utilizing a survivorship-bias-free dataset encompassing over 66,000 simulated long-only trades, they confirm that a small fraction of trades drive overall profitability. 

Key Takeaways

Profitability is concentrated: Less than 7% of trades account for the majority of gains, highlighting the importance of capturing outlier returns.
Transaction costs hinder small portfolios: High turnover rates make the strategy less effective for portfolios under $1 million without cost mitigation measures.
Turnover Control algorithm improves feasibility: Implementing this algorithm reduces transaction costs, making the strategy more accessible and effective across different portfolio sizes.
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