61–70 of 167 posts
In other news, students who study the most for SATs will post the best scores.
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> "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…
> In other words, every time a security is traded, its price is updated with a very small amount of new information.
The update happens after trading, so before that the price is by definition outdated, meaning it has that bit of "inefficiency" you spoke about. Hence "doing your homework" as a hedge-fund manager would in theory allow you to spot this inefficiency and make better trades.
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…
Neither result would be surprising, that is why this issue requires research.
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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?
1. I'm friends with multiple people who used to work at Renaissance, and I've directly spoken with folks who are currently there (among other, similar firms).
2. I've read the research published by professors and post-docs before they were hired.
3. I have first hand experience developing forecasts for various market research firms and many hedge funds. I've seen first hand what the difference is between the firms that say they're quantitative and the ones that are quantitative.
Not to discourage you (and you probably already know this) but: since you've already worked in the industry, Renaissance is very unlikely to take you seriously as a candidate. I'm not sure if that's what you meant when you said you're interested, but I figured I'd put it out there.
In any case, contrary to popular belief it's possible to connect the dots on what firms like RenTec do. But just having a high level idea of how they work isn't nearly enough to replicate their success. Their success relies on a large number of interdisciplinary scientists cooperating with the support of an incredibly specialized infrastructure. Getting the cliff notes on how they achieve e.g. dimensionality reduction doesn't come close to cutting it.
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…
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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…
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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.
Also, an accounting loss isn't always a "real" loss. For example, with the recent tax overhaul, some companies booked unexpected losses because they had significant carry forward losses. Those were reduced in value because the corporate tax rate went down. But essentially nothing changed -- yes the tax base and book value of these losses were adjusted, but no cash was lost.
They can also push revenue or profits back or pull it forward. It really is a jungle out there.
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…
Since the GFC a lot of macro bets in both US and EU have been bets on political will and central bank actions. In late 2010 Bank of America was technically insolvent (based on analysis similar to yours), but the Fed went to work and backstopped the market in a multitude of ways and the valuation soared. In 2012 I would have bet the farm that Greece was headed into bankruptcy, but the Greek people didn't revolt (as much as anticipated) and so the ECB effectively nationalized most Greek debt across the rest of the Eurozone. I'm no expert but I try to apply these lessons to all new modern crisis I hear about. Underfunded pensions will destroy certain states, or social security will be broke and unable to pay out benefits? Sure; we'll see.
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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 ver…
A current price aka price at last trade of 10$ and nobody willing to sell for less than 10$ and nobody willing to buy for more than 9.99$.
A new seller shows up, if they are willing to wait they might get more than 9.99$ or they can accept 9.99$.
Or a new buyer shows up they can buy for 10$ or wait for a lower price.
Now, without effort people can just look at the history of trades and see the price rise or fall. This is independent of whatever reason that causes more people to suddenly want to buy or sell, just the fact that people are buying or selling in it's self moves the price.
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…
Are there any possible holes in the making you see now? I was curious for a while if crypto was going to pose a systemic risk, but the total market cap[0] was never really high enough. [0] https://coinmarketcap.com/