Chapter 8 uses a unique data set from the Commodity Futures Trading Commission to investigate the impact of trading by large hedge funds and commodity trading advisors (CTAs) in 13 futures markets. Regression results show there is a small but positive relationship between the trading volume of large hedge funds and CTAs and market volatility. | Two Risk and Managed Futures Investing Chapter 8 uses a unique data set from the Commodity Futures Trading Commission to investigate the impact of trading by large hedge funds and commodity trading advisors CTAs in 13 futures markets. Regression results show there is a small but positive relationship between the trading volume of large hedge funds and CTAs and market volatility. Further results suggest that trading by large hedge funds and CTAs is likely based on private fundamental information. Chapter 9 examines the dynamic nature of commodity trading programs that tend to mimic a long put option strategy. Using a two-step regression procedure the authors document the asymmetric return stream associated with CTAs and then provide a method for calculating value at risk. The authors also examine a passive trend-following commodity index and find it to have a similar put optionlike return distribution. The authors also demonstrate how commodity trading programs can be combined with other hedge fund strategies to produce a return stream that has significantly lower value at risk parameters. Chapter 10 examines the relationships between various risk measures for CTAs. The relationships are extremely important in asset allocation. If two measures . beta and Sharpe ratio produce identical rankings for a sample of funds then the informational content of the two measures are similar. However if the two measures produce rankings that are not identical then the informational content of each measure as well as asset alloca- 149 150 RISK AND MANAGED FUTURES INVESTING tion decisions may be unique. Interdependence of risk measures has been examined previously for equities and recently for hedge funds. In this chapter the authors analyze 24 risk measures for a sample of 200 CTAs over the period January 1998 to July 2003. Chapter 11 provides a simple method for measuring the downside protection offered by managed futures. Managed futures are generally considered to help reduce
