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Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#91

Post by orbifold »

dcolkitt wrote: post #79
orbifold wrote: post #50

My long standing hypothesis on Medallion is that they figured out how to apply gauge theoretic techniques to financial markets. This fits with Simons work that he did before he founded the fund. The fact that gauge theory is applicable to for example currency trading is folk knowledge in the Havard, Princeton, IAS circles (here is for example the lecture notes of a popular lecture by Maldacena that uses currency trad…

> My long standing hypothesis on Medallion is that they figured out how to apply gauge theoretic techniques to financial markets. No. Listen to the Talking Machines podcast with Nick Patterson (who was a senior VP in research at RennTech for a long time). To paraphrase he says that the vast majority of their strategies are no more than simple linear regression. The challenge is that even though regression is conceptu…

The assertions you make are not necessarily in contradiction to what I am saying. In discretised form most of the formulas I'm talking about boil down to simple linear algebra with unknown parameters. You can then use essentially linear regression to find those parameters, based on observed market data and trades you are making.

So I was talking about the "what should I be regressing" and "transformation" (you can use gauge theory to adjust for inflation and changes in exchange rate in non-obvious ways) part. There is no question that having access to enough data and operational excellent are a complementary component.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#92

Post by esoterica »

orbifold wrote: post #50

My long standing hypothesis on Medallion is that they figured out how to apply gauge theoretic techniques to financial markets. This fits with Simons work that he did before he founded the fund. The fact that gauge theory is applicable to for example currency trading is folk knowledge in the Havard, Princeton, IAS circles (here is for example the lecture notes of a popular lecture by Maldacena that uses currency trad…

This is pure crank nonsense.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#93

Post by jkaptur »

papln wrote: post #56
onetimemanytime wrote: post #49

Earlier quoted context omitted.

Ok, new Medallion-like fund accepts lower returns, meaning its partners get better deals then under Medallion. Why wouldn't they leave Medallion? This is since 1988 apparently. I don't buy that they are the "smartest people" or that they are doing something so amazing that others don't get.

Medallion is for employees of Renaissance. It doesn't have customers/partners. If you accept that Renaissance is good at what it does, it's simple to posit that Renaiisance reserves its most profitable activities for its own employees as preferred customers/partners, as a compensation vehicle and a PR/recruiting tactic to make Renaissance look more impressive. Medallion is like Google's "X", in that sense. This expla…

I think that the "partners" in that comment refer to trading counterparties.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#94

Post by codingslave »

endorphone wrote: post #44
codingslave wrote: post #21

Earlier quoted context omitted.

areas like HFT are

There are dozens of HFT players, all endlessly leap-frogging each other. Despite the fact that HFT is actually a relatively tiny market (the crumbs claimed by the HFT market account for at most a couple of billion a year), and is grossly overstated in significance. In the broader market there are tens of thousands of major players, and millions of smaller participants. There is no network effect, and the market is so…

Most HFT players are barely making money, theres a few that are actually highly profitable

People in this thread are confusing beta and alpha, alpha is limited and competed for

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#95

Post by smabie »

slumdev wrote: post #74
tomatocracy wrote: post #52

Earlier quoted context omitted.

Incidentally this also means that if you buy the etf on day 1 and the underlying is at 100, on day 2 the underlying falls to 99 then on day 3 goes back to 100 then you would be left with less than 100% of what you started with (assuming perfect tracking and no fees).

Yes, this is called "decay", and it's why you don't want to hold a leveraged fund over any long period.

According to my models there are very few market environments in which you would make less money with a leverage ratio of 2.5x. In order maximize return your leverage should be:

Expected Return/Expected Variance

For example even if the expected return is 1% and the vol 5%, the ideal leverage ratio for maximizing return is 4x!

In short, a 2-3x leveraged ETF is an excellent investment and should outperform the index in almost all market conditions. It’s when your leverage ratio goes over 5x that you start to have major problems a lot of the time.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#96

Post by ajay-d »

jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

That makes a lot of sense. And also explains why the the other funds aren't as 'stellar'. I mean all these quants are in the same company, how is one fund perfect, and the others lackluster.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#97

Post by gjm11 »

SirLJ wrote: post #71
ceejayoz wrote: post #61

Earlier quoted context omitted.

Yeah, those useless academics. https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_uni...

any successful academic in economics making money in the stock market? Or I am missing something? Maybe a Nobel winner from Chicago?

I don't know what that "in economics" condition is there for. I expect there are plenty of economics professors doing very nicely in the stock market, but it tends to be mathematicians and physicists who found hedge funds.

Successful academics who have done that and made shedloads of money in the stock market would include, er, Jim Simons, founder of Renaissance Technologies, the very firm under discussion in this thread.

The thing that got acquired by Renaissance and turned into the Medallion Fund was called Axcom. That was founded by a guy called James Ax, who before he founded that was ... a mathematics professor at Cornell, Harvard, and Stony Brook.

Another key guy at Axcom was Elwyn Berlekamp. He was a mathematics professor at UC Berkeley.

So it doesn't seem like there's any incompatibility between being an academic and being very, very good at extracting money from the stock market.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#98

Post by leto_ii »

> The Medallion fund has been closed to external capital since 1993, and analysis of the flagship fund’s annual returns suggests that significant distributions are made each year to keep the fund about the same size. For example, despite the fact that Medallion reported annual net returns above 29 percent every year between 2010 and 2018, the fund’s assets under management stayed at about $10 billion throughout that period.

This suggests to me that whatever opportunities they're exploiting, they would vanish quickly if they would increase the fund's size (e.g. by compounding returns).

It's worth taking a look at the Numberphile interview with Simons (https://www.youtube.com/watch?v=QNznD9hMEh0). There he suggests that they're mostly using ML and other relatively simple techniques, with a bit of more advanced math when it comes to predicting how a trade will move the market. This chimes in well with the idea that they have to keep their trades relatively small in order to remain this profitable.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#99

Post by Mvandenbergh »

SamBam wrote: post #63
jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

I'm not sure I understand your suggestion. So there are (simplistically) two funds, Sucker and Winner. They take complementary positions, and, whichever one wins gets transferred to Winner. So far so good. Winner is winning every bet, and Sucker is losing every bet. Now you need people to put money into Sucker, because it has to come out the other end into Winner. How do you convince them to do that? By giving them a…

People with illegally earned money put their money into a series of short lived sucker funds which exist to funnel money invisibly into the winner fund where it reappears as legitimate investment returns. The dumb version of this with very simple mirror trades which were easy to track has been seen "in the wild" in Russia as carried out by people at DB.

BTW I don't really buy this theory but that's how it would work.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#100

Post by stanferder »

jandrewrogers wrote: post #68
scottious wrote: post #2

I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also…

Even without knowing the full details, their returns are quite plausible if you have less speculative knowledge of their business. The challenge for most hedge funds is that any "edge" they find decays over time, often quickly, which leaves them scrambling to find a new edge that will allow them to outperform the market. Most hedge funds go to a lot of effort to preserve an edge to the extent they can. Renaissance fo…

I find it really hard to believe that the fund can be generating returns so consistently by pursuing a variety of different strategies over time.

It seems very unlikely that Renaissance/Medallion constantly finds these things, whereas other operations almost never do.

The conspiracy theorist in the back of my brain thinks that Renaissance/Medallion hires a lot of eggheads so they can plausibly claim to keep finding mathematical and operational edges, but the actual money-making strategy might be something else entirely.

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