Learning From Kathryn Kaminski's "In Search of Crisis Alpha"

Crisis alpha delivered by momentum practitioners will be an excellent diversification during tail risk events for traditional portfolios.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.


Crisis alpha opportunities are profits which are gained by exploiting the persistent trends that occur across markets during times of crisis… … If Managed Futures strategies deliver crisis alpha, their performance can be divided into three parts: crisis alpha, a risk premium, and the risk free rate. This is shown in chart below:

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Source: In Search of Crisis Alpha – Kathryn M Kaminski

Predicting the exact onset of a market crisis can be next to impossible. Market timing ability for such rare events is highly unlikely. Yet, after seeing the exemplary performance of Managed Futures during the credit crisis, a popular misconception has been that Managed Futures strategies predicted and profited from equity market crisis using short positions in equity indices. During some of the past crisis periods Managed Futures strategies did profit from short equity positions, but in general, gains in equity indices make up only a portion of the total crisis alpha. Managed Futures strategies react to market crisis and position themselves across a wide spectrum of asset classes in highly liquid futures contracts to profit from trends which occur across all asset classes during these periods (see Crisis Performance by Sector reproduced below). By decomposing crisis performance by sector, it becomes clear that Managed Futures is not market timing equity crisis events but responding positively to the widespread price dislocations and trading opportunities which follow them.

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Source: In Search of Crisis Alpha – Kathryn M Kaminski


Research Paper: In Search of Crisis Alpha: A Short Guide to Investing in Managed Futures

Authors: Kathryn M. Kaminski, Ph.D.

Company: RPM Risk & Portfolio Management

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