Fund picking

Do Copycat CTAs Outperform Individualistic CTAs?

13.February 2020

Our society teaches us, that it is good to be different. That our trading strategy must be always unique, creative and individualistic. It is boring and unprofitable to be the “average”, to do what the others do. And then, there is a research paper written by Bollen, Hutchinson and O’Brian which offers the opposite view. Their analysis explains there exist one hedge fund style where everything is the other way round – trend-following CTAs funds. Their interesting (but for some maybe controversial) paper shows that CTAs with returns that correlate more strongly with those of peers have higher performance. It appears that CTA strategy conformity is a signal of managerial skill. Now, that is an eccentric idea 🙂

Authors: Bollen, Hutchinson and O’Brian

Title: When It Pays to Follow the Crowd: Strategy Conformity and CTA Performance

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Lexically Diverse Hedge Funds Outperform

24.October 2019

Do you want to have an outperforming hedge fund? Then write a description of your investment strategy more creatively, clearly and use more synonyms… Of course, I am just kidding. However, a recent academic study written by Joenväärä, Karppinen, Teo, and Tiu shows that text sophistication can be used to find skilled hedge fund managers. Lexical diversity is the propensity of the writer to use multiple synonyms rather than repeated words. Skilled and, therefore, cognitively gifted managers are more likely to use rich vocabulary when writing their strategy descriptions. Therefore, if you feel that your favorite manager composes clear and captivating texts, maybe he is skilled also in his primary role – investment management …

Authors: Joenväärä, Karppinen, Teo, Tiu

Title: Text Sophistication and Sophisticated Investors

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