Do new investment strategies take existing strategies' returns -- An investigation into agent-based models

TL;DR

This paper investigates whether short-term reversal traders prey on commodity trading advisors by using an agent-based model, finding instead that both can coexist and benefit from each other.

Contribution

It introduces an agent-based model including CTAs and STRTs to analyze their interactions and effects on trading performance.

Findings

Both CTA and STRT agents trade more and earn higher profits when both are present.

Contrary to expectations, STRTs do not prey on CTAs but may have a mutually beneficial relationship.

The model suggests coexistence can enhance overall trading outcomes.

Abstract

Commodity trading advisors (CTAs), who mainly trade commodity futures, showed good returns in the 2000s. However, since the 2010's, they have not performed very well. One possible reason of this phenomenon is the emergence of short-term reversal traders (STRTs) who prey on CTAs for profit. In this study, I built an artificial market model by adding a CTA agent (CTAA) and STRT agent (STRTA) to a prior model and investigated whether emerging STRTAs led to a decrease in CTAA revenue to determine whether STRTs prey on CTAs for profit. To the contrary, my results showed that a CTAA and STRTA are more likely to trade and earn more when both exist. Therefore, it is possible that they have a mutually beneficial relationship.