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Trend Following in Bear Markets

Does it work?

Nicolas Rabener
10 min read
22 Jan 2024

SUMMARY

  • Short-only trend following in stocks generated consistent losses across markets
  • However, combining the strategy with an equities portfolio generated diversification benefits
  • Like other hedging strategies it would be difficult to execute this strategy over the long-term

INTRODUCTION

Trend following is likely the most researched investment strategy. The folks at AQR have backtested the framework across various asset classes for more than a century starting in 1880, while researchers at Capital Fund Management managed to go back even further to 1800.

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