Maximizing futures returns using fixed fraction asset allocation

While considerable evidence has been produced concerning the efficacy of trading rules in futures markets, the results have generally not allowed for the reinvestment of profits as might be observed for real traders. Similarly, the determination of the appropriate capital allocation required per fut...

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Bibliographic Details
Published in:Applied financial economics 2004-10, Vol.14 (15), p.1067-1073
Main Authors: Anderson, John A., Faff, Robert W.
Format: Article
Language:English
Subjects:
Asset allocation
Assets
Finance
Futures market
Market
Profit
Profitability
Profits
Studies
Trade
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Summary:While considerable evidence has been produced concerning the efficacy of trading rules in futures markets, the results have generally not allowed for the reinvestment of profits as might be observed for real traders. Similarly, the determination of the appropriate capital allocation required per futures contract traded has been largely unstructured so making reported percentage returns questionable. This paper provides evidence of the profitability of a simple and publicly available trading rule in five futures markets but more importantly incorporates the ability to reinvest any profits via the 'Optimal f ' technique described by Vince ( 1990 ). The results indicate that money management in speculative futures trading plays a more important role in trading rule profitability than previously considered by providing dramatic differences in profitability depending on how aggressively the trader capitalizes each futures contract.
ISSN:0960-3107
1466-4305
DOI:10.1080/0960310042000281167