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Jutta G. Kurth, Zoltan Eisler, Adam Rej, Jean-Philippe Bouchaud · 2026-07-02
The paper documents that short-term trend-following, profitable for centuries, stopped delivering reliable returns around 2009, using ~100 liquid futures contracts from 1995-2025 and a CTA proxy. It finds the key factor separating dead from surviving trends is the volatility-normalized tick size: trend profits collapsed on small-tick contracts across all horizons but stayed intact on large-tick ones. The authors argue trend profitability depends on a self-reinforcing market-impact feedback loop that HFT market-making has broken specifically on small-tick (sparse order book) contracts.
Why it matters: For anyone running or allocating to trend/CTA strategies, this suggests where the edge may have eroded and where it may persist — favoring large-tick contracts over small-tick ones for short-term trend signals. It reframes trend-following performance as partly dependent on market microstructure and execution conditions rather than pure price behavior.
⚠ This is an empirical and interpretive academic study of a proposed mechanism, not a validated live-trading strategy, and the causal feedback-loop explanation remains the authors' interpretation.
Systematic trend following has, on average, been profitable for at least two centuries; yet since approximately 2009, short-term trends have ceased to deliver reliable returns. Using a cross-section of roughly 100 liquid futures contracts spanning 1995-2025, together with an industry-representative CTA proxy, we document the break and characterise its dependence on signal speed and asset class. We evaluate four candidate explanations - capacity constraints, market electronification, a regime change in CTA-versus-order-flow interactions, and a microstructural mechanism - and find that the first three fail on grounds of timing, magnitude, or cross-sectional heterogeneity. Our central empirical finding is that the cross-sectional variable distinguishing degraded from surviving trends is the volatility-normalised tick size: post-2008 trend PnL has collapsed on small-tick contracts across all signal horizons, while remaining essentially intact on large-tick ones. Neither asset class nor liquidity replicates this dichotomy. We interpret this result through a self-fulfilling feedback loop that, in our view, lies at the heart of the trend anomaly itself: trend signals trigger directional trades, whose market impact reinforces the very price moves that generated the signal. Both the profitability and the persistence of trend are sustained by this impact channel, which requires that trend followers can execute aggressively at reasonable cost. We argue that the post-crisis transition to HFT-dominated market making, whose liquidity-withdrawal behaviour in front of predictable directional flow has sharply contrasting consequences for sparse (small-tick) and dense (large-tick) limit order books, has broken this loop on small-tick contracts. On large-tick contracts, residual depth remains sufficient, and the loop continues to operate.
Go deeper: a full research-committee breakdown of this paper, its assumptions and failure modes, and how its method would apply to a specific ticker or your watchlist. See StockTools AI →
AI summary generated from the paper’s public abstract via arXiv; it may miss nuance — read the source before relying on it. Thank you to arXiv for its open-access interoperability; StockTools is not affiliated with arXiv, and all rights remain with the authors. Educational only, not financial advice.