A Quantitative Analysis of Managed Futures (CME Group)

May 2012

KEYWORDS: absolute return, alpha, alternative investment, assets under management, AUM, benchmark, commodity risk, commodity trading advisor, CTA, custody, Equity markets, ETF, Exchange-Traded Funds, FCM, financial crisis, fixed income, foreign exchange, futures commission merchant, Hedge Fund Research, hedge funds, index, Institutional Investors, John Lintner, Liquidity, managed futures, market risk, Newedge, omega, portfolio diversification, risk management, stock, transparency


Ryan Abrams
Ranjan Bhaduri, PhD, CFA, CAIA
Elizabeth Flores, CAIA

  • CME Group


The late Dr. John Lintner (1916 – 1983), a Harvard University Professor, had an illustrious and prolific career, including recognition as one of the co-creators of the Capital Asset Pricing Model (CAPM). Lintner found the risk-adjusted return of a portfolio of managed futures to be higher than that of a traditional portfolio consisting of stocks and bonds. The Lintner study also found that portfolios of stocks and/or bonds combined with managed futures showed substantially less risk at every possible level of expected return than portfolios of stocks and/or bonds alone.

The objectives of this paper are not at all modest, namely, to furnish a modern-day Lintner paper, and also to dispel some common myths regarding managed futures. While Lintner’s study has been applauded by scholars and practitioners who have read it, there still seems to be a gap and disconnect between many institutional investors and the managed futures space. Is this because through the passage of time the kernel of Lintner’s findings is no longer true? Read the paper to find out.

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