Posts Tagged ‘Alpha’

Why it can pay not to follow fashions –

February 21, 2012

Is this what HFT shops have been up to, Algorithms that anticipate what companies mutual funds and hedge funds will buy next? Has Renaissance been so successful for so long because of this insight?

Once again is the information edge under suspicion? Returns are driven not so much by insight but group think and herd behavior.

Crunching through them reveals what mutual funds and hedge funds have been doing in the previous three months. If we knew in advance what fund managers planned to buy, the information on mutual funds alone would provide annualised returns of 46.6 per cent, according to StarMine, part of Thomson Reuters.

These data are not, of course, available in advance, so front-running the entire mutual fund sector is impossible. And buying what mutual funds have already bought is disastrous: by the time the data is published, copycat investors would have made an annualised loss of almost 10 per cent.

via Why it can pay not to follow fashions –