Breaking Bad Trends

We document and quantify the negative impact of trend breaks (i.e., turning points in the trajectory of asset prices) on the performance of standard monthly trend-following strategies across several assets and asset classes. In the years of the U.S. economy’s expansion following the global financial crisis of 2008, we find an increase in the frequency of trend breaks, which helps explain the lower performance of these trend strategies during this period. We illustrate how to repair such strategies using a dynamic trend-following approach that exploits the return-forecasting properties of the two types of trend breaks: market corrections and
rebounds.

Goulding, Christian L. and Harvey, Campbell R. and Mazzoleni, Michele, Breaking Bad Trends (14 January 2024). Financial Analysts Journal, 2024, 80(1): 84-98. DOI: 10.1080/0015198X.2023.2270084

Also see our related paper: Momentum Turning Points

Keywords: Time-Series Momentum, Volatility Timing, Market Timing, Asset Pricing, Trend Following, Turning Points, Momentum Speed, Mean Reversion, Behavioral Finance

JEL Classification: G12, G13

Suggested Citation: Suggested Citation

Goulding, Christian L. and Harvey, Campbell R. and Mazzoleni, Michele, Breaking Bad Trends (April 5, 2024). Available at SSRN: https://ssrn.com/abstract=3594888 or http://dx.doi.org/10.2139/ssrn.3594888