Hedge-fund managers that do the most research will post the best returns • Hacker News Board

Re: Hedge-fund managers that do the most research will post the best returns

#51

Post by wgerard » Thu, Mar 22, 2018, 3:46 PM UTC

dsacco wrote: post #43

wgerard wrote: post #33

Not surprised at all. Anecdote: A friend and I used to run a website that tracked activist short sellers and their campaigns, and published all that information as a nice centralized database basically. Hedge funds were, by far, the most interested in this - which was surprising to us, our original target audiences were auditors and legal firms. My impression from this experience is that the more successful hedge fun…

Did you keep up with that project or move on to something else? It's humorous to me that most people who end up selling data to hedge funds more or less "fall" into that industry by accident. Your story is exactly how it typically happens: you develop a new data-enabled product for one market, then a bunch of hedge funds find it and realize it's useful. Most companies pivot from their original market once they realiz…

We moved on - my friend was in business school at the time, and thought that continuing on with the project would be detrimental to his job search (he was looking at joining a hedge fund).

Yeah, it was a very sudden shift. We always knew they were potential customers, we just didn't realize how quickly they would take to the product (as opposed to legal firms which you can imagine are significantly more bureaucratic about such things).

Re: Hedge-fund managers that do the most research will post the best returns

#52

Post by vanderZwan » Thu, Mar 22, 2018, 3:49 PM UTC

dsacco wrote: post #49

vanderZwan wrote: post #40

> "The fact that public information acquisition relates to performance is surprising. SEC filings are the very definition of 'public' information, and therefore, usage of such information should not be profitable," Honest question: isn't that a contradiction in terms? Public information stands for "stuff that everyone is presumed to know", right? Like, economists using an assumption of "perfect knowledge of the marke…

It's not a contradiction. A better, more formal definition of "public" would be, "information which is sufficiently accessible that its price impact has diffused through the market." In the context of capital markets, "public" doesn't mean that everyone knows it, it means that it's essentially accessible to anyone (in a reasonably similar slice of time). As a corollary, it also means that public data has more or less…

> "information which is sufficiently accessible that its price impact has diffused through the market."

Thank you (and Retric) for explaining, but this phrasing does not quite convince me: it does not explain how this diffusion is supposed to take place, and I for one cannot imagine a way of this knowledge to be distributed among the market as a whole without individuals knowing this information and freely sharing it together. Which again seems to be fundamentally undermined by what was measured.

I mean, yes, there are situations in which you can distribute knowledge among people where no individual can see the whole picture, but together they manage (for example, the knowledge required to turn crude oil into plastic requires knowledge among every step of production, diffused among individuals - nobody truly "knows" how to turn crude oil into plastic if you define that as knowing everything involved in the process). I do not see that kind of context apply here though.

Re: Hedge-fund managers that do the most research will post the best returns

#53

Post by valdiorn » Thu, Mar 22, 2018, 3:51 PM UTC

dsacco wrote: post #17

philfrasty wrote: post #8

Earlier quoted context omitted.

Do you know how these algo funds keep a competitive edge for so many years (e.g. Renaissance 30+ years)? I am trying to understand their "kind" of product innovation as in what are the biggest factors they are continuously trying to improve?

Renaissance Technologies has completely automated the process of signal discovery.[1] They don't hire researchers to manually derive novel insights or trading models from data, and they don't really bother with exclusive sources of data. Instead, they hire researchers to improve methods for automatically processing vast amounts of arbitrary data and extracting profitable trading signals from it. When most funds say t…

As someone who has worked for one such secretive hedge fund in the past, and has for a long time been very interested in Renaissance, I'd be curious to know what your source of this information is. Any chance you could share some more insight?

Re: Hedge-fund managers that do the most research will post the best returns

#54

Post by vanderZwan » Thu, Mar 22, 2018, 3:53 PM UTC

thedevil wrote: post #47

Around 2008, I read some public filings by banks. I made only two back-of-the-napkin adjustments: 1) I combined off-balance sheet assets and liabilities into the balance sheet, and 2) I changed the expected % losses to approximately that of Wells Fargo. With those two simple adjustments, I saw that some big banks were in the hole by (combined) tens of billions of dollars. The market prices for these banks made it cle…

I guess that when you say "all the expertise it took", you're comparing yourself to hedge-fund managers and major investors?

Re: Hedge-fund managers that do the most research will post the best returns

#55

Post by meri_dian » Thu, Mar 22, 2018, 3:55 PM UTC

>"Perhaps most surprising, the researchers found the median fund-month download amount is only four filings while the mean was 672, suggesting that relatively few funds are accessing vastly more information."

Interesting...

Re: Hedge-fund managers that do the most research will post the best returns

#56

Post by dsacco » Thu, Mar 22, 2018, 3:55 PM UTC

vanderZwan wrote: post #52

dsacco wrote: post #49

Earlier quoted context omitted.

It's not a contradiction. A better, more formal definition of "public" would be, "information which is sufficiently accessible that its price impact has diffused through the market." In the context of capital markets, "public" doesn't mean that everyone knows it, it means that it's essentially accessible to anyone (in a reasonably similar slice of time). As a corollary, it also means that public data has more or less…

> "information which is sufficiently accessible that its price impact has diffused through the market." Thank you (and Retric) for explaining, but this phrasing does not quite convince me: it does not explain how this diffusion is supposed to take place, and I for one cannot imagine a way of this knowledge to be distributed among the market as a whole without individuals knowing this information and freely sharing it…

The price of a security is, formally speaking, a (weighted) sum of many disparate data points related to the security. The more data is available about the security, the more efficiently it's priced. Individuals do not need to explicitly share information about any given security to each other for it to spread through the market, because there exists a feedback cycle between any security and the publicly available data related to it. The price is literally a function of that information.

In other words, every time a security is traded, its price is updated with a very small amount of new information. It's not important that any single individual has all the information, it's important that the market has all the information. That is the essential function of the market - price discovery. No single investor (or even a team) could hope to accurately encapsulate everything there is to know about a given security. The market "prices" new information into a security, which is precisely what it means for data to be diffused.

Stated another way, novel information about a security represents a potential price inefficiency. But that price inefficiency is essentially lost once the data has become public.

Re: Hedge-fund managers that do the most research will post the best returns

#57

Post by thedevil » Thu, Mar 22, 2018, 3:55 PM UTC

vanderZwan wrote: post #54

thedevil wrote: post #47

Around 2008, I read some public filings by banks. I made only two back-of-the-napkin adjustments: 1) I combined off-balance sheet assets and liabilities into the balance sheet, and 2) I changed the expected % losses to approximately that of Wells Fargo. With those two simple adjustments, I saw that some big banks were in the hole by (combined) tens of billions of dollars. The market prices for these banks made it cle…

I guess that when you say "all the expertise it took", you're comparing yourself to hedge-fund managers and major investors?

Yeah, I assumed that some large investors (e.g. hedge funds) would have someone skilled in accounting shenanigans and would make big bets to move the market to reflect the information that was publicly available.

Re: Hedge-fund managers that do the most research will post the best returns

#58

Post by taneq » Thu, Mar 22, 2018, 4:02 PM UTC

It's almost like knowledge is power or something.

Re: Hedge-fund managers that do the most research will post the best returns

#59

Post by sseveran » Thu, Mar 22, 2018, 4:06 PM UTC

fwdpropaganda wrote: post #6

piker wrote: post #2

Wouldn't some sophisticated shops potentially use crawlers, etc. hosted from cloud providers (i.e., third-party IPs) that might significantly skew this data?

I assumed the sophisticated shops ran their own datacenters. Can you imagine RenTech running their code on other people's computers? I can't.

Why? The reasons for having their own datacenters are either legacy or needing some sort of specialized hardware that is not available at a cloud provider. Mana which is a new pure quant fund uses AWS extensively.

Re: Hedge-fund managers that do the most research will post the best returns

#60

Post by vanderZwan » Thu, Mar 22, 2018, 4:07 PM UTC

dsacco wrote: post #56

vanderZwan wrote: post #52

Earlier quoted context omitted.

> "information which is sufficiently accessible that its price impact has diffused through the market." Thank you (and Retric) for explaining, but this phrasing does not quite convince me: it does not explain how this diffusion is supposed to take place, and I for one cannot imagine a way of this knowledge to be distributed among the market as a whole without individuals knowing this information and freely sharing it…

The price of a security is, formally speaking, a (weighted) sum of many disparate data points related to the security. The more data is available about the security, the more efficiently it's priced. Individuals do not need to explicitly share information about any given security to each other for it to spread through the market, because there exists a feedback cycle between any security and the publicly available da…

> it's important that the market has all the information.

I'll be honest with you: when I read this my first response was "what does this even mean? What is "the market" and how does it "have information"?" I guess the sentences preceding it are supposed to explain the structure that the market has built up to automagically capture this information, but I don't quite follow.

I'm not criticising your comments, I'm very grateful that you are trying to explain how this works and the logic behind it, but so far it's black-box abstractions all the way down.