AQR examines why trend-following strategies have struggled in the past decade, arguing the issue is not structural but tied to smaller market moves overall. The paper challenges the idea that crowding or inefficiency explains weak returns, pointing instead to unusually muted cross-asset price trends.
You Can’t Always Trend When You Want
AQR
Abhilash Babu
Research
19 Pages
Key Takeaways
Muted Market Moves: Average trend performance fell alongside smaller price swings, with post-2010 Sharpe ratios dropping to 0.05 versus 0.28 historically.
Trend Efficiency Intact: Analysis across 67 markets since 1880 shows strategies still convert large moves into profits with similar efficiency over time.
Return Potential Cyclical: A 10% market move historically translated to roughly 5% trend returns, suggesting upside if volatility regimes normalize.
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