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Posts tagged with hedge funds

The twitter hedge fund died.

sellthenews:

In May the Financial Times reported that Derwent Capital, the hedge fund that partnered with Johan Bollen and Huina Mao to trade the “Twitter Predictor” Strategy “shut down”. The official story is that Derwent’s Capital Markets’ Absolute Return fund opened for investments in July 2011, and…The official story is that Derwent’s Capital Markets’ Absolute Return fund opened for investments in July 2011, and shuttered after a single month, with reported returns of 1.86%.

There are a few oddities here:

  1. Why is the FT reporting in May 2012 that a hedge fund closed in August 2011?1 It would seem this is no longer news. To confirm this is not an error on the part of the Financial Times, I quote a ‘weekly sentiment email’ sent by Derwent Capital on June 6, 2012: “Some of you may have read about our Hedge Fund closing last year in press articles this week.” What? I just caught up on the news of this ‘moon landing’, and now you’re telling me there are more events happening in the world?
  2. As late as the end of March 2012, Derwent was posting performance numbers for managed accounts on their webpage. The reported performance was generally positive, but not consistent, with the spectacular performance promised by Johan Bollen. This period of Derwent’s existence has gone down the memory hole.

You can follow @shabbychef on twitter as well.




Stability of Currency Markets to HFT

Last week @gappy3000 shared the Bank of International Settlements’ autumn 2011 assessment of the impact of high-frequency trading on foreign exchange (currency) markets.

For the lazy, here’s a summary of the executive summary:

HFT in FX operates on high volume but small order sizes, low margins, low latency (… milliseconds) and short risk holding periods (… well under five seconds). …[I]t occurs mainly in the most liquid currencies.

…

Market functioning: HFT[’s] impact on … FX market[s] … could be seen as beneficial in normal times. HFT helps to distribute liquidity across the decentralised market, improving efficiency, and has narrowed spreads…. Questions remain about HFT[s’] … willingness to provide liquidity … under [stressed] market conditions. … That said, recent experience  suggests that HFT participants are not … flightier than traditional participants in times of market stress….

Systemic risks: The 6 May 2010 “flash crash” in equities suggests that systemic risk is … more likely to be triggered by a “rogue” algorithmic trade than by pure HFT, which tends to involve small-size trades, short horizons and diverse strategies. Nonetheless, HFT may … propagate shocks initiated elsewhere….
Market integrity and competition: Many of the “predatory” or “unfair” practices attributed to HFT participants … are in fact not new. HFT is but the latest high-tech, high-speed manifestation of them.

(Source: mobile.twitter.com)




market makers are normally paranoid that the other side of the trade “knows” what is going on and that it is a pickoff.


as a market maker, you think “what can i do against this that makes sense?” so you look for a vertical or 1×2, for example. or if there is nothing, then “how much i am going to bleed out of you in order to make [this] worth the risk?”

apine

Most people think that day-traders don’t add economic value. The NuclearPhynance traders’ phorum might change their minds. Those [economists] whose idea of finance = prices converging efficiently upon a “true” value due to a kind of value-investor who also sells short—might see in apine’s words a different story. Financial markets can be more like a discussion between people who don’t necessarily know what’s going on, but try to figure that out based on what everyone else is saying.

For those who don’t understand what “liquidity” means to a trader: it means a market maker who is willing to get scraped up in a scary environment. Liquidity sometimes means a market maker (sometimes: a high-frequency trader) who is willing to play on a muddy pitch and not even charge much for the trouble.

A boxer expends much energy avoiding punches, even if they’re only feints.

(Source: nuclearphynance.com)




With the the increasing availability of complicated alternative investment strategies to both retail and institutional investors, and the broad availability of financial data, an engaging debate about performance analysis and evaluation is as important as ever. There won’t be one right answer delivered in these metrics and charts. What there will be is an accretion of evidence, organized to assist a decision maker in answering a specific question that is pertinent to the decision at hand.
Performance Analytics R package
(by Brian G. Peterson & Peter Carl) 




[A] strong case can be made for the [random walk hypothesis]… This market view is supported by the fact that the vast majority of mutual funds fail to beat the broader market year after year, and history shows us that the ten best-performing funds in any one year will drop to the bottom of the pack in the following two to four years…. Simply put, there is no way to consistently beat the market.

Needless to say, this view of things does not sit well with Wall Street, which preaches that … relying on expertise are the keys to investing (and their business model!)….

[A]lthough the random walk theory paints a strong case against mutual funds, it is not entirely bullet-proof. Investors consistently fall prey to fear, envy, overconfidence, faddism, and other recognizably human imperfections that make markets not only inefficient but predictably inefficient…. If the DOW goes up one week, it is more likely to go up the next week. In the long run all of these moves smooth themselves out, but in the short run, predicting and trading these constant adjustments can actually make for quite a profitable proposition.

Agustin Silvani, Beat the Forex Dealer

What I’m hearing—not for the first time by a trader writing a book—is the implication that the way to consistently make money as a trader is to make the market more efficient, more stable.

If I were running a company based on this asset, I would be thanking the trader who stabilized my business decision. Is that what happens when these guys run longs and shorts all year long?




The Biggest Middle Finger

“What I have learned about the hedge fund business is that I hate it.” 

I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck….. What is the point? They will all be forgotten in fifty years anyway.

—Andrew Lahde, who bet against subprime and made over 800% returns

He got to say “I told you so”. He got to be an underdog. And he got  O( 10,000,000 ) dollars.

Also — he concludes with a plug for legalizing hemp “while he has everyone’s attention”.

(Source: ftalphaville.ft.com)




GARCH stands for Generalized Autoregressive Conditional Heteroskedasticity. To translate, skedasticity refers to the volatility or wiggle of a time series. Heteroskedastic means that the wiggle itself tends to wiggle. Conditional means the wiggle of the wiggle depends on something else. Autoregressive means that the wiggle of the wiggle depends on its own past wiggle. Generalized means that the wiggle of the wiggle can depend on its own past wiggle in all kinds of wiggledy ways.

Kent Osband

(is a ninja)