Campbell Examines Market Crisis & Alpha Opps

April, 2017

“In the Chinese language, the word “crisis” is composed of two characters, one representing danger and the other, opportunity.” – John F. Kennedy. 

New research by Campbell & Company examines market crisis from a multi-asset perspective and reveals how, for the global investor, there’s always a crisis somewhere. Using quarterly data from late 1990 to 2016, Campbell looks at the 10 worst quarterly returns for 17 global indexes across geographic regions and commodity sectors. They find that crisis is not a simple one-dimensional problem but a multi-asset phenomenon. 

Campbell’s white paper, Crisis Alpha Everywhere: Trend Following from a Multi-Asset Perspective, takes a close look at trend following performance by asset class and concludes that trend following strategies can capture crisis alpha by actively trading a wide range of markets.  Further, the ability to take both long and short positions, at different speeds, allows trend following strategies to adapt to difficult market environments, better positioning the strategy to profit when crises do occur.

Trend following strategies may be able to capture crisis alpha due to three key characteristics:

  1. The use of highly liquid and low credit exposure contracts
  2. The ability to be systematic with a lack of long bias
  3. Adopting a dynamic multi-asset class approach

In order to determine whether trend following has tended to capture crisis alpha across asset classes, the performance of trend following is examined during the worst periods for global assets.

Key insights include: 

- From a multi-asset perspective, for any given quarter, from late 1990 to 2106, crisis occurs somewhere 63% of the time.

- Certain periods exhibit more stress than others but across time there are many periods where several assets experience danger or difficulty.

- More market crisis tends to imply more opportunity for market alpha.

- When more crisis occurs across markets, trend following and CTAs found greater opportunities on average.

- For a global investor, crisis is everywhere and trend following strategies are one of the few strategies with the potential to adapt to capture crisis alpha.

For more analysis and information you can review the whitepaper, which introduces you to the key concepts and conclusions, here: