Trend Following Factors from Hsieh and Fung

May 25, 2012

(This article was first published on Timely Portfolio, and kindly contributed to R-bloggers)

The beauty of R and academic replication is that on the Friday before Memorial Day weekend I can read an academic paper and do some analysis all before breakfast. In this case, the paper is

Hsieh, David A. and Fung, William, The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers. The Review of Financial Studies, Vol. 14, No. 2, Summer 2001 .
Available at author’s site at Duke University: PDF file.

with data courtesy of the authors available at http://faculty.fuqua.duke.edu/~dah7/DataLibrary/TF-Fac.xls

Let’s get the factors into R and run some very introductory analysis on the Edhec data from PerformanceAnalytics. The factors as defined by the authors are:

Trend Following Risk Factors from Fung and Hsieh, RFS (2001)
PTFSBD: Return of PTFS Bond lookback straddle
PTFSFX: Return of PTFS Currency Lookback Straddle
PTFSCOM:Return of PTFS Commodity Lookback Straddle
PTFSIR: Return of PTFS Short Term Interest Rate Lookback Straddle
PTFSSTK:Return of PTFS Stock Index Lookback Straddle