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Menampilkan postingan dari Juli, 2011

Applying Corrective AI to Daily Seasonal Forex Trading

  By Sergei Belov, Ernest Chan, Nahid Jetha, and Akshay Nautiyal     ABSTRACT We applied Corrective AI (Chan, 2022) to a trading model that takes advantage of the intraday seasonality of forex returns. Breedon and Ranaldo (2012)   observed that foreign currencies depreciate vs. the US dollar during their local working hours and appreciate during the local working hours of the US dollar. We first backtested the results of Breedon and Ranaldo on recent EURUSD data from September 2021 to January 2023 and then applied Corrective AI to this trading strategy to achieve a significant increase in performance. Breedon and Ranaldo (2012) described a trading strategy that shorted EURUSD during European working hours (3 AM ET to 9 AM ET, where ET denotes the local time in New York, accounting for daylight savings) and bought EURUSD during US working hours (11 AM ET to 3 PM ET). The rationale is that large-scale institutional buying of the US dollar takes place during European working hours to pa

Sorry, your return is too high for us

I enjoyed reading Richard Wilson's The Hedge Fund Book  (Richard also runs the Hedge Fund Blogger  site). To be clear: it is purely marketing-oriented. It doesn't tell you how to find a successful trading strategy, but its focus is to tell you how to market your fund to investors once you have a successful strategy. To that end, it does a pretty good job in conveying what might be conventional wisdom to seasoned fund managers. (For e.g., don't bother to market to institutional investors if your AUM is less than $100M.) The book is filled with quite engaging interviews with fund managers, fund marketers, and other fund service providers (including our very own administrator Fund Associates). If Scott Patterson's The Quants  is about the gods of hedge funds, this book is for and about the mortals. One paragraph in the book stood out: "I've worked closely on the third-party marketing and capital introduction/prime brokerage side of the business, and I often see bo

The social utility of hedge funds

There is an article in the New Yorker magazine profiling Bridgewater Associates, the world's biggest global macro hedge fund. Inevitably, we come to the awkward question: " If hedge-fund managers are playing a zero-sum game, what is their social utility?" I thought about this question a lot in the past, and   I used to agree with many others that the social utility of hedge funds, or trading in general, is to provide liquidity to the markets. And a good economic case can be made that the more liquid a market is, the higher the utility it is to all participants. However, based on recent experience of flash crash and other unfortunate mishaps, we find out that traders typically do not provide liquidity when it is needed most! So this answer becomes quite unsatisfactory. In trying to come up with a better reply, I though it is curious that few people asked "What is the purpose of having a Department of Defence?" since wars between nations are typically also zero-

Hedge fund transparency and "barometers"

Jim Liew of Alpha Quant Club recently posted an interesting article about the increasing demand for transparency of hedge fund strategies by institutional investors, so much so that they are essentially willing to invest only in managed accounts with real-time trades and positions updates. This is, of course, bad for fund managers, since not only can the investor reverse-engineer the simpler strategies from such knowledge, they can also piggy-back on the trades, thus paying a much smaller portion of their profits as performance fee. One might be tempted to think that since the investors are going to reverse-engineer the product anyway, why not just make it as simple and as generic as possible, and charge a much lower fee than the usual 2-20 (which hopefully will attract a much larger investor base), so that the main value to the investor is just convenience and not the originality of the strategy? In fact, Jim wants to do just that. He proposes to construct hedge fund "barometers