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Designing Quantitative Strategies

June 26, 2017 @ 5:30 pm - 8:30 pm

| $20

Abstract: With breadth difficult to estimate, the fundamental law’s authors were clear that the law is not an operational design tool. Portfolio managers need, however, to make the most of scarce alpha sources. Here we solve a model of quantitative active management, and show how the solution provides operational strategy design. Instead of breadth, the model includes the related correlations. The solution consists of averages of portfolio properties over all possible trajectories of returns and their forecasts, providing robustness to the performance estimates. The resulting formulae – for active risk, active return, expected return, turnover, and signal and factor exposures – are compact and quickly evaluated.

We demonstrate the use of the formulae with several examples. The first resolves a difference in the literature over the impact of return correlations on performance. High return correlations have widely and plausibly been said to detract from active performance. The concept of breadth supports this view. Buckle, however, reported that correlations improve active performance. We show that Buckle, rather than the consensus, is right. All else equal, active managers should be more aggressive when return correlations are expected to be high, not low. The second example shows that inter-asset correlations between return forecasts also improve rather than impair performance, again contrary to breadth-based intuition. Monte Carlo simulations verify the design formulae and these conclusions. We provide the intuition behind the behaviors and add some simple illustrative cases. Further examples include exploiting differences in predictive power across sectors; incorporating Environmental, Social and Governance tilts into active stock-selection; imposing additional risk controls; and managing the balance of idiosyncratic and common factor risk.

Speaker Bio

The Speaker: Leigh Sneddon, PhD CFA, Mayfield Investment Solutions, Inc.

Leigh’s asset management background includes portfolio management, alpha research, product development, leadership, innovation, presenting and publishing in his former positions at BlackRock, Barclays Global Investors, and State Street Global Advisors..

Prior to entering the asset management industry, he provided innovative solutions at US intelligence and defense agencies, Bell Laboratories, Princeton University, and Oxford University.
Recognizing that thousands of investment professionals dedicate their careers to finding, measuring and controlling risk, he has formed Mayfield Investment Solutions, Inc. Mayfield’s focus is innovative portfolio analytics that enhance cost- and risk-adjusted return.
Leigh’s education includes a PhD in Theoretical Physics at Oxford University, an MA in Mathematics at University of New South Wales, and a BSc (First Class Honors) at Sydney University.

How to Pay

REGISTRATION

Use the eventbrite link below to register for the meeting ($20) or to purchase 2017 annual membership ($50).

QWAFAFEW members who have already paid their $50 2017 dues do not need to register.

Eventbrite link –

https://www.eventbrite.com/e/new-venue-qwafafew-leigh-sneddon-on-designing-quantitative-strategies-tickets-35315682156

The link is valid only before the meeting.

Details

Date:
June 26, 2017
Time:
5:30 pm - 8:30 pm
Cost:
$20
Website:
https://sanfrancisco.qwafafew.org/

Organizer

Jim Quinn
Email:
mailinglist.sf@qwafafew.org

Venue

Robert Half Associates
50 California Street 10th Floor
San Francisco, CA , CA 94111 United States
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