AQR examines why trend-following strategies have struggled in the past decade, arguing the issue is not structural but driven by unusually small market moves across asset classes. The paper challenges the idea that crowding or inefficiency is to blame, showing instead that muted volatility has suppressed returns despite intact diversification and signal efficacy.
You Can’t Always Trend When You Want
AQR
Abhilash Babu
Research
14 Pages
Key Takeaways
Muted Market Moves: From 2010–2018, the SG Trend Index Sharpe ratio fell to 0.05 vs 0.28 since 2000, largely due to smaller average price movements across 67 markets.
Trend Efficiency Intact: A 100+ year dataset shows a persistent positive relationship between move size and returns, indicating no degradation in the strategy’s ability to monetize trends.
Broad Diversification Maintained: The strategy spans 67 markets including 29 commodities and 12 currencies, with no evidence that reduced cross-market diversification explains recent underperformance.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
