Does CTA Size Erode Performance?

Abstract

The author examines the returns of commodity trading advisers (CTAs) from August 1995 to July 2005 to determine whether the size of a CTA affects its performance. Size is often quoted by academics as a restraint to performance improvement, in particular when a considerable amount of capital is constantly injected into a fund. Do CTAs with such inflows of capital neglect their daily trading behavior? The findings suggest that the size of a CTA may have an impact on its performance. Furthermore, the author believes that investors who want to incorporate CTAs into their portfolios should concentrate on performance measurements such as risk-adjusted return rather than fund size.