Performance, Persistence, and Pay: A New Perspective on CTAs

Using a large and representative dataset of commodity trading advisors (CTAs), we provide compelling evidence that CTAs generate significant net excess returns of at least 4.1% annually; that approximately 64% of the funds have positively skewed returns; and that there is considerable heterogeneity among CTAs, with systematic trend followers doing significantly better than other subcategories. More importantly, we find that CTAs not only beat passive, normative benchmarks, with a yearly gross alpha of at least 5.3% but also generate significant, incremental crisis alpha during periods of equity market turmoil. Finally, we show that cross-sectional differences in the performance of CTAs are persistent up to three years and that managerial compensation predicts fund performance. Our results are consistent with a rational market where investors compete to invest with successful CTA managers who use fees to signal their skills to investors. JEL Classification: G11, G12, G14, G23