> As the genome project produced reams of data, Lun saw an opportunity to break ground in computational biology and in 2006 joined the Broad Institute of MIT and Harvard, a crossroads for scientists and hedge fund managers. There Lun met senior computational biologist Nick Patterson, a former cryptographer who had spent a decade at Renaissance Technologies making mathematical models. Another Lun colleague, genomic researcher Jade Vinson, left Broad for the same pioneering quant hedge fund for 10 years.
Well he is certainly surrounded by some impressive people.
I think at this point in the search for alpha, wall street has employed applied mathematicians, physicists, code breakers, engineers, economists, chemists, computer scientists, sociologists, and now computational biologists.
Each one of them brought some new/novel mathematical techniques to the field. Do Medieval Historians learn any specialized math?
Maybe he can beat the market reliably but he's only managing $20 million. The big question every quant fund asks is can this strategy provide alpha at a salable level of investment.
A 3 year track record is plenty long enough to prove out a system and provide a track record. It's a troubling sign that there is only $20 million in his fund if.
> A 3 year track record is plenty long enough to prove out a system and provide a track record. It's a troubling sign that there is only $20 million in his fund if.
I'm curious as to why you say a 3 year track record is long enough to prove a system. I don't necessarily disagree (though I think number of trades executed in that timespan and the type of trading strategy might be as important as the timespan itself), but I'm interested in your reasoning.
It's important to note that 3 years doesn't mean 3 data points. It really depends on the funds average trade horizon. Which is, I think, exactly what you were referring to.
An HFT firm trades at such small scales that it can use its daily returns such that each year actually provides 252 data points.
On the other side of the coin, Berkshire Hathaway would need benchmark times longer than a single year.
I'm assuming the fund has holding times of around a week based on intuition and prior knowledge of alto of different fund investment structures.
The thing to understand about hedge funds is that most of them change investment strategies at some point in their lifetime such that historical records no longer really apply. This can happen for a number of reasons:
1) markets get crowded and force people to search for alpha somewhere else
2) funds get larger and existing strategies don't have the capacity to manage the new money.
3) traders leave and new traders have new ideas.
3 year is an industry goldilocks mark for comparing hedge funds. Not too long to take into account old strategies that are no longer employed and not too short that it doesn't allow the strategies to play out.
I cant' remember the exact number but Victor Haghani of LTCM fame talked about this and said it would be something like 143 years of data to know if a biased coin that comes up heads 60% of the time is biased to a 95% confidence level.
Obviously this isn't workable and as such we have to use smaller time frames.
Yeah, that all makes sense, thanks. I figured you were using that 3 year figure with an implicit acknowledgement that it would provide greater or lesser rigor depending on the number of trades and the holding time. Thanks for the resources as well.
The best hedge funds should be 2x the SPY... It would beat every body. However, clients won't pay for this. People spend so much effort and don't beat the market, but clients want people to work on stuff...
Well he is certainly surrounded by some impressive people.
I think at this point in the search for alpha, wall street has employed applied mathematicians, physicists, code breakers, engineers, economists, chemists, computer scientists, sociologists, and now computational biologists.
Each one of them brought some new/novel mathematical techniques to the field. Do Medieval Historians learn any specialized math?
Maybe he can beat the market reliably but he's only managing $20 million. The big question every quant fund asks is can this strategy provide alpha at a salable level of investment.
A 3 year track record is plenty long enough to prove out a system and provide a track record. It's a troubling sign that there is only $20 million in his fund if.