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Sunday, September 2

2nd Sep - Weekender: Trading & Markets

Sections this week include Portfolio, Trading, Hedge Funds, High Frequency and Others. No "must-read"-articles here, except for the ones specifically interested in the particular topic.

Previously on MoreLiver’s:
31.8. Best of August most read pieces + all my ’views’

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Tomatoes And The Low-Vol Effect IndexUniverse
For the investor more concerned about tracking error and measurement against a benchmark and his peers, a relative risk approach is more relevant. For the investor who desires avoiding sharp downdrafts but does not mind tracking error deviation, an absolute risk approach based on improved Sharpe ratios may be more appropriate. In either case, both relative and absolute risk investors can improve the structure of their equity portfolios by migrating away from the conventional equity allocation.

MPT Implodes: Mean Variance Optimization Bites the DustSystematic Relative Strength
If we remove the academic flourishes, what he is saying is that mean variance optimization is dreadful and is easily outperformed by simply equal-weighting the asset classes.

The Efficiency of Mean-Variance Optimization with In-Depth Covariance Matrix Estimation and Portfolio RebalancingSSRN
The results indicate that it is possible to achieve notably higher Sharpe ratios with portfolio optimization than by using a naïve equal-weight strategy.

Comparing First, Second and Third Generation Commodity IndicesSSRN
Long-only second generation indices, which attempt to minimize the harmful impact of contango on performance and use active long-only signals based on momentum or roll-yields, are found to outperform their first generation counterparts. Third generation indices fare even better as they accurately buy backwardated assets and short contangoed ones, thereby reducing overall volatility. We see these indices as serious contenders to commodity trading advisors that merely replicate strategies based on momentum or term structure.

Study Finds Many ETF Indexes MisleadingInstitutional Investor
The Financial Industry Regulatory Authority bars most fund owners from using back-tested data to promote their products. But index providers are not subject to that restriction. As a result, many of today’s indexes are constructed by index providers based on studies by sponsors of ETFs that will be linked to them. The sponsors then license the indexes from the providers.

Estimating The Optimal Rebalancing RulesThe Capital Spectator
In order to harvest the associated risk premium, you’ll have to deal with two big challenges. One is behavioral—rebalancing works best in a contrarian context, i.e., buy low, sell high. The other hurdle is technical—deciding when to rebalance, and by how much.

Presentation on Quantitative Value InvestingGreenbackd
video + white paper links

Macro Trading Models Using Economic Statistics (July 2011) – History Squared

Research Review: Risk Parity Investing StrategiesThe Capital Spectator

Fact File: S&P 500 Sigma EventsCFA Institute

The perils of do-it-yourself investingMarketWatch
Can workers fight the weak economy by becoming full-time investors?

Why Investing is the World’s Most Difficult ProfessionJohn Standerfer
Outside of professional sports, I’m not sure there is any other industry that generates such objective and continuous measurements.

Day Trading Is a Sucker’s GameCrossing Wall Street
The cult of the financial analyst was laid in its tomb ten years ago. Now the much-vaunted figure of the day trader is headed for the same scrap heap.

Some hard questions.Adam Grimes

5 Reasons You Deserve To Lose Every Penny In The Marketbclund

Reckoning with Risk (1)Above The Market
Reckoning with Risk (2)Above The Market
Because all investment is burdened with it, investors must all and always reckon with risk, its implications and its consequences.  However, risk is an elusive concept.  Risk is anything but tame, benign, entirely predictable or fully controllable.  It takes on different guises in different situations or contexts and is not susceptible to precise definition.

A Market Wizards Dozen: Key Lessons For All TradersJack Schwager / Traderplanet

A little mental trick…Adam Grimes
anytime to you put a trade on, assume that the trade is going to be a loser.
John Bogle’s 10 Rules of InvestingPragCap

Investment Advice from MarsRick Ferri
Philosophy, strategy, discipline

Why the Investment Case for Hedge Funds is Still SoundPragCap
Alexander Ineichen’s 30-minute video (I’ve read one book by him, it’s ok!), or alternatively the direct link to Youtube.

Looking at the Ins and Outs of Volatility TradingAdvanced Trading
In a video interview with Opalesque TV, Maple Leaf trader Michael Wexler breaks down the ins and outs of volatility trading.

Inside Abel Noser's Trading Floor Advanced Trading
Advanced Trading takes you on an exclusive tour of Abel Noser's New York trading floor, where the agency broker known for transaction cost analysis, is customizing algorithms for the buy side, while growing its fixed income trading and transitions business.

Study Confirms Hedge Funds Taking Over Bond Trading from BanksInstitutional Investor
A newly released study by Greenwich Associates of Stamford, Connecticut, confirms anecdotal reports that hedge funds are filling the gap left by banks that regulators have forced out of proprietary trading.

Hedgies Fade The Rally As 'Flows' Dominate PositioningZH
Only 17% of credit managers (real or leveraged) expect notable widening in spreads (a rise in risk) by year-end, according to Citigroup's most recent client survey.

High-Frequency Traders Flat-Out Buying Data Ahead of YouMarketBeat / WSJ
The ISM is just one of the private data providers that are increasingly splitting their dissemination policies. Some are sticking to the letter of the law, releasing their information to all comers at the same time, but also providing special opportunities for high-speed traders willing to pay for super-fast feeds.

A Father Of High-Speed Trading Thinks We Should Slow DownNPR

Asset Managers Seek Ways to Avoid Another “Knightmare”Institutional Investor
Spurred by the growing complexity of global equity markets, buy-side investors are finding smarter ways to access liquidity and protect their anonymity in the markets. They’re getting help from some unlikely service providers, including high frequency trading firms and hedge funds.

People as Market Makers Were Never Crash Insurance EitherAll About Alpha
“What we need,” Angel said, “is a fail-safe or fail-graceful system, one that recognizes that glitches will happen and that can contain the damage they can do through appropriate circuit breakers and shock absorbers.”

The Luck of the Average Minyanville
One of the most common risk errors is to do a computation assuming average values for uncertain inputs and treat the result as the average outcome.

Machine Learning Throwdown – BigML

New $30,000
Write a paper, win money.

Nouriel’s 26 Early Warnings and PredictionsEconoMonitor
Roubini’s 2008 advisory, ‘The Rising Risk of a Systemic Financial Meltdown: Twelve Steps to Financial Disaster,’ reads as quite prescient, looking to the season of fraught policy meetings for central banks and governments that lies ahead. In fact, Nouriel’s outline of a slow collapse at a time when people were hoping for a quick recovery still seems bold in retrospect. Altogether I count 26 predictions in the article, and I would say all 26 came to pass…

Cloud-Based Financial AdvisersTurnkey Analyst

Book BitsThe Capital Spectator

Book Review: A Decade of DebtThe Aleph Blog

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