In this note we present a study of trend following using two centuries of data. We find that trend following is a persistent market anomaly with highly significant performance over this long back-test. We also present a combined portfolio of a trend following investment and a standard basket of equities and bonds.
Large shocks in an equity portfolio are typically driven by correlated (and hence collective) moves of its constituents. This accords correlation matrices a historically central place in numerous studies on portfolio construction and risk management . In this note, we illustrate how certain statistical methods enable us to identify the main market factors (or “modes”) that an equity market neutral portfolio should hedge, in order to extract value from signals, while avoiding exposure to large, collective market moves. These methods rely on the processing of stock returns correlation matrices. However, because time series are finite, measured correlations are subject to the effects of noise: a fact that one must take into account when employing empirical correlation matrices in portfolio construction. Comparing the properties of empirical correlation matrices to those obtained in random cases, and using results from the theory of random matrices, enables us to distinguish genuine characteristics of the dependence structure of a set of stocks from noisy and unreliable features.
Finding a good compromise between the exploitation of known resources and the exploration of unknown, but potentially more profitable choices, is a general problem, which arises in many different scientific disciplines. We propose a stylized model for these exploration-exploitation situations, including population or economic growth, portfolio optimisation, evolutionary dynamics, or the problem of optimal pinning of vortices or dislocations in disordered materials. We find the exact growth rate of this model for tree-like geometries and prove the existence of an optimal migration rate in this case. Numerical simulations in the one-dimensional case confirm the generic existence of an optimum.
Winners will be announced at an awards lunch on 27th November; Capital Fund Management have been shortlisted for ‘Quant Hedge Fund Manager of the Year’.
The Professional Pensions Investment Awards recognise the advisers, providers and investment managers that offer the highest level of innovation, performance and service to occupational pension schemes and their members, and have done the most to improve over the past year
CFM is participating at the Professional Planner Dealer Group Research Forum in Sydney, a one-day event designed specifically for senior research professionals.
Focusing on improvements in the generation and delivery of research and research-related materials to financial planners and their clients, the forum features a mix of panel sessions and open and small-group discussions, and will also provide an insight into what’s expected of the research community by financial planners themselves, licensees, regulators and other parties, including professional indemnity insurers and dispute resolution schemes.
“Market Microstructure: The CFM-Imperial Workshop” is a two-day event taking place on 14-15 December 2015. The aim of the workshop is to bring together a wide range of academics and practitioners, to facilitate discussion of the many different ideas that have blossomed in these communities during the past decade, and to provide an overview of the state-of-the-art research in market microstructure. The workshop will be organized by the CFM-Imperial Institute for-Quantitative Finance, and will be hosted in the auditorium of Deutsche Bank, in the heart of the City of London. The event will unite several of the world's leading researchers in quantitative finance around specialized research talks and round-table discussions, and will also provide young researchers with the opportunity to present their work in poster sessions. Overall, we seek to provide an opportunity for diverse and stimulating intellectual exchange on a wide range of topics highly relevant to modern financial markets.