We continue our endeavor to construct ‘pure’ risk premia factors in the FICC space. Theconcept of pure risk premia factors is quite helpful when allocation decisions are madeand also when performance analysis is performed – for more details on the benefits ofthe concept of pure factors, please refer to The quest for pure equity factor exposure.

In Quantitative Perspectives on Cross-Asset Risk Premia: Disentangling momentum andcarry in commodities, we used the framework of Market-neutral carry strategies andfocused on the isolation of the cross-sectional momentum and carry effects with anapplication to commodities futures. In the publication, Quantitative Perspectives onCross-Asset Risk Premia: Risk premia performance review, trend-following in factorsand latest model views, we disentangle the trend-following factor from the other riskpremiastyles.

The trend in an individual asset arises due to its exposures to the broad market factors(and their respective trends) and its idiosyncratic return. In Quantitative Perspectives onCross-Asset Risk Premia: Disentangling momentum and carry in commodities, we haveintroduced a market-neutral cross-sectional momentum strategy that focuses onidiosyncratic returns. In the current analysis, we focus directly on the trends in themarket factors.