Featured Publications

Trend Following: a Persistent Market Anomaly

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.

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Hedging Out Market Factors

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 [1].
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.

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Explore or exploit? A generic model and an exactly solvable case

Authors Thomas Gueudré, Alexander Dobrinevski, Jean-Philippe Bouchaud

E print http://arxiv.org/abs/1310.5114

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.

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Featured Events

Special Afternoon ''Data Science in ENS''

The ENS and CFM are pleased to celebrate the 1-year anniversary of the CFM-ENS “Modèles et Sciences des Données” Chair with a conference taking place on December 8th, from 12:00 to 17:00 (with lunch at 13:00) in the Salle Jaurès at Ecole Normale Superieure, 29 rue d’Ulm, in Paris.

The conference is centered on the broad topic of data science, with the intention of bringing together researchers from diverse backgrounds, including mathematics, computer science, physics, chemistry, and neurosciences, who have a common interest in tackling complex and large-scale data problems.

This year, several invited speakers will put a particular focus on the theme “Physics & machine learning”.

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Market Microstructure: The CFM Imperial Workshop

After the very successful first edition in 2015, where topic related to Market Impact, Optimal Trading, Limiter Order Books and Prices Formation as well as High-Frequency Data were discussed throughout “Market Microstructure: The CFM-Imperial Workshop” is back for a two-day event on 11-12 December. The aim of the workshop is to bring together again 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 by J.P. Morgan in their Victoria Embankment offices, in 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.

In recent decades, the widespread uptake of electronic trading has facilitated the recording of high-quality data that describes the actions and interactions of market participants at the microscopic scale. Analysis of this data has revealed striking regularities that challenge many long-standing theories regarding financial markets.

The field of market microstructure seeks to establish connections between activity at the ultra-fast, microscopic scales and the emergent properties that appear on longer time scales. In this way, market microstructure is a bottom-up approach to understanding financial markets. Recent developments in this direction have helped to provide new insight into many important questions regarding price formation, market stability and macroeconomics. For example, recent market microstructure analyses yield convincing explanations – and, importantly, make testable quantitative predictions – on issues such as unusual price returns, volatility clustering, price impact and liquidity fluctuations. These important advances have clear practical implications for far-reaching issues such as market design, optimal execution and regulation.

Correspondingly, market microstructure has been vigorously investigated in many different communities, including economics, financial mathematics, econometrics, computer science and physics. Typically, researchers in this field have been scattered in academic institutions, banks and hedge funds. As a result, overlap between the community often remains limited, and several important advances in the field suffer from a lack of visibility.

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Green Finance Research Advances

Charles-Albert Lehalle is on the research committee for this event, whose aim is to share updated knowledge on Green Finance current academic research and more specifically on the following topics: green bonds, corporate social responsibility, micro and macroeconomic baseline scenarios involving environmental risks.