A Century of Evidence on Trend-Following Investing; Since 1903

Synopsis from “A Century of Evidence on Trend-Following Investing” by AQR Capital:

We study the performance of trend-following investing across global markets since 1903, extending the existing evidence by more than 80 years. We find that trend-following has delivered strong positive returns and realized a low correlation to traditional asset classes each decade for more than a century. We analyze trend-following returns through various economic environments and highlight the diversification benefits the strategy has historically provided in equity bear markets.


Using historical data from a number of sources, we construct a time series momentum strategy all the way back to 1903 and find that the strategy has been consistently profitable throughout the past 110 years.


The performance has been remarkably consistent over an extensive time horizon that includes the Great Depression, multiple recessions and expansions, multiple wars, stagflation, the Global Financial Crisis, and periods of rising and falling interest rates.


Our long-term out-of-sample evidence suggests that it is unlikely that such price trends are a product of statistical randomness or data mining. Indeed, the first eight decades of data is out-of-sample evidence relative to the literature and the performance is strong in each of these decades. Trends appear to be a pervasive characteristic of speculative financial markets over the long term. Trend-following strategies perform well only if prices trend more often than not. A large body of research has shown that price trends exist in part due to long-standing behavioral biases exhibited by investors, such as anchoring and herding, as well as the trading activity of non-profit seeking participants, such as central banks and corporate hedging programs.


Trend-following investing has performed well consistently over more than a century, as far back as we can get reliable return data for several markets. Our analysis provides significant out-of- sample evidence beyond the substantial evidence already in the literature. This consistent long-term evidence indicates that trends are pervasive features of global markets.

Note: Paper available from AQR.

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