Futures Market Liquidity and the Trading Cost of Trend Following Strategies

We use a unique dataset reporting the trading of an institutional asset manager implementing trend following strategies to estimate the associated transaction costs. With information both at the trade and the fund levels, we disentangle the impact of the execution quality from the management decisions on these costs. We show that the disappointing performances observed for trend following these recent years are explained by a drop in the volatility of the futures markets these strategies generally trade.