Multifactor Analysis of Hedge Fund, Managed Futures, and Mutual Fund Return and Risk Characteristics

Abstract

Managed futures investments, which are directed by commodity trading advisors (CTAs), and hedge funds have different investment opportunity sets from mutual funds. Hence, their returns are likely to be explained by different factors as well. CTA returns are positively related to commodity market trends, whereas hedge fund and mutual fund returns are related to index returns in the markets in which the fund invests. Interestingly, hedge funds offered higher risk-adjusted returns than mutual funds of CTAs in the study.