Quant Macro Investing

Risk Taking Disciplined

Quant hedgies must fish in fresh waters-Goldman

Tue Dec 1, 2009 1:01pm EST

* Older strategies like value, momentum getting overcrowded

* Eyes newer areas of event-driven, catastrophe reinsurance

By Laurence Fletcher

PARIS, Dec 1 (Reuters) – Computer-driven hedge funds must hunt for new areas to exploit as some areas of making money have become so overcrowded they may no longer be profitable, according to Goldman Sachs (GS.N) Asset Management. Robert Litterman, managing director and head of quantitative resources, said strategies such as those which focus on price rises in cheaply-valued stocks, which latch onto market momentum or which trade currencies, had become very crowded.

Instead he said opportunities could come in areas such as event-driven strategies — which focus on special events such as mergers or restructuring — and catastrophe reinsurance, although he added they can just as quickly disappear.

He also pointed to credit, emerging markets, volatility trading and commodities.

“You have to adapt your process,” Litterman said at the Quant Invest 2009 conference. “What we’re going to have to do to be successful is to be more dynamic and more opportunistic and focus especially on more proprietary forecasting signals … and exploit shorter-term opportunistic and event-driven types of phenomenon.” Computer-driven or quantitative hedge funds attempt to make money by quickly exploiting trends or anomalies in markets such as equities, government bonds or currencies.

However, some funds such as Goldman’s controlled a large share of some markets in summer 2007 and many were caught in a vicious circle of selling. “I think the world has fundamentally changed for quants,” he said, adding that his funds now allocate a greater share of assets to newer strategies since that crisis.

“We’re putting together data that’s not machine-readable, finding databases that haven’t been explored nearly as well as others, identifying linkages across companies and industries and finding patterns in the data that are not as well known.” (To read the Reuters Hedge Fund Blog click on blogs.reuters.com/hedgehub; for the Global Investing Blog click here) (Editing by Jon Loades-Carter)

December 3, 2009 Posted by | ABCs for Quant | 1 Comment

Automated trading champ (ATC)

Have you developed something quant model to trade?  If you are good, people will beat the path to your door.  Apparently there is a competition ATC – see below:

 

http://www.zerohedge.com/article/gold-vs-silver-us-dollar-vs-gold-and-us-dollar-index

Technical Profiles of Gold vs Silver, the US Dollar vs Gold and the US Dollar with highlights from an interview with the winner of the 2008 Automated Trading Championship

November 19, 2009 Posted by | ABCs for Quant | 4 Comments

Tudor

Look at Tudor’s recent report (Tudor is a huge hedge fund with AUM over US$10 billion).

 

1. Quantitative based trading is not a small part, in particular for the “Equity Strategies” categories:

YTD to end of Q3 2009

Gross P&L (US$ Millions, p.3 of the report)

Strategy

1. Global Macro Strategies

Discretionary Macro                                    937.5

Quantitative Macro                                       128.7

2. Equity Strategies

Discretionary Equity Long/Short                9.4

Quantitative Equity Systems                      72.2

 

2. What worked (p.4)?

“Trend following models contributed to most of the gains for the quarter.

The FX models in developed and emerging markets also performed well…

… gains this quarter from (i) equity market neutral systems trading in the US, and (ii) stock selection in Europe and the emerging markets.”

 

3. Capital allocation as of 1st Oct 2009 (p.5)

 

Discretionary Macro 75%

Quant Macro 13%

Discretionary Equity Long/Short  6%

Quant Equity Systems  6%

 

4. Capital allocation (Macro Sub-strategy)

Global opportunistic  53%

Quant macro systems   15%

Commodities   14%

Fixed income   8%

Foreign exchange   6%

Emerging markets   4%

 

5. Capital allocation (Equity sub-strategy)

Quantitative equity systems   48% (systems for individual equities)

Long/short Asia/Emerging Markets   32%

Long/Short Europe   20%

 

 

 

October 31, 2009 Posted by | ABCs for Investing, ABCs for Quant | 1 Comment

Exotic Bets to Hedge a Portfolio

NY Times

WHEN the global markets plummeted after Lehman Brothersdeclared bankruptcy in September last year, a handful of alternativeinvestments remained stable or even made money for investors. Among them were “managed futures,” which are not for everybody.

Managed futures use computer-driven trading models that can go either long — that is, betting on rising prices — or short, betting that prices will fall, in a variety of futures contracts.

 

http://www.nytimes.com/2009/10/29/your-money/stocks-and-bonds/29FUND.html

 

October 30, 2009 Posted by | ABCs for Quant | 1 Comment

Quant Macro Investing

We think picking the right relationship for observation can be way more important in building the so-called quant model.

For example, check out the relationship between BDI and German government bond yield here (why German bond yield?  How about US Treasury?  Gilts?  JGB? …).

This apparent relationship may not stand the test of time (say, back dating for 15 years).  We, however, think that is precisely the point.  As the macro environment is rapidly changing, such relationship is more likely to emerge more recently.

Before moving to “Quant Macro”, how do we know, in the first place,  if “pure macro” works or not?  Isn’t that too subjective?  We think we can add value here, as we are with a hedge fund that invests based on macro understanding (here more for macro investing).

October 21, 2009 Posted by | ABCs for Quant | Leave a comment