Hedge Fund Strategies
- Thread starter dima777
- Start date
arbs, and many other complex strategies that require a lot of computational power and proprietary methods. You are not going to find your Holy Grail down this path. (BTW, I will not have more to offer if you keep digging)
Since you did not hear the first time, I will repeat:
Yes. First, they get rid of technical analysis. Then they create the automated system.
What, you though they huddled together, programming moving averages and MACDs??? I worked for two investment banks. They did not sit around the tables, plotting the length of RSI to use...
They see that too many people bought houses that they could not afford. Then they short the housing stocks.
After that they naked short OSTK whenever it pops up.
Finally, they start rumors that BSC is going down the tubes, then buy over $ 1 million in out the money puts, and make a $ billion.
After that they naked short OSTK whenever it pops up.
Finally, they start rumors that BSC is going down the tubes, then buy over $ 1 million in out the money puts, and make a $ billion.
TraderZones - what is your point?
What are you trying to bring to this thread other than stating that you have worked for two investment banks?
Given the arbitrary and secretive nature of this I don't think any single individual have a full picture of what is going on strategy-wise at hedge funds.
I found that some litterature gives hints to what strategies are used: I.e. Richard Bookstaber's A demon of our own design mentions reversal to mean pair trading.
Andrew Lo's paper on why did quants blow up last august uses a reversal to mean model as well.
Also I imagine portfolio diversification techniques are commonly used.
As for phds - option pricing requires a fair bit of math so a sciences background is certainly relevant.
And it is probably a good selling point for a hedge fund being able to say that your staff consists of super smart chess playing russian phds.
Remember a hedge fund lives off fees not returns.
Eventhough the two are related they are not the same thing.
Good yearly returns and fees may hide a systemic risk of an catastrophic event - leaving good returns and fees for say 5 years and then a single catastrophic year with zero fee resulting in plenty of fees but a compounded return of -100%.
What are you trying to bring to this thread other than stating that you have worked for two investment banks?
Given the arbitrary and secretive nature of this I don't think any single individual have a full picture of what is going on strategy-wise at hedge funds.
I found that some litterature gives hints to what strategies are used: I.e. Richard Bookstaber's A demon of our own design mentions reversal to mean pair trading.
Andrew Lo's paper on why did quants blow up last august uses a reversal to mean model as well.
Also I imagine portfolio diversification techniques are commonly used.
As for phds - option pricing requires a fair bit of math so a sciences background is certainly relevant.
And it is probably a good selling point for a hedge fund being able to say that your staff consists of super smart chess playing russian phds.
Remember a hedge fund lives off fees not returns.
Eventhough the two are related they are not the same thing.
Good yearly returns and fees may hide a systemic risk of an catastrophic event - leaving good returns and fees for say 5 years and then a single catastrophic year with zero fee resulting in plenty of fees but a compounded return of -100%.
some popular trading strategies are based around VWAP. A very basic strat is to short the price of an instrument when it drifts too high above vwap, or to buy when it gets too low below vwap. One might ask, "how do you know when a price is too high above of below vwap?" It's based on statistical variances.
another is the buy order book vwap imbalance. a vwap is calculated for the buy-side of the order book, and the sell side as well. Think of macd's. When one diverges away from the other, you take that trade. Say the buy vwap starts to increase in slope, whilst the sell vwap is flat to negative in slope, you want to get with the trend, which is to buy, buy, buy.
Contrarian strats are put to use as well, easy concept, just fade the moves that are at statistical extremes (think of a bollinger band fade, for a simple example)
The truth is that many hedge funds have a treasure trove of strategies to use, that have been previously discussed, like arbs and the above info, and it lets the black boxes choose which strategy to use when the situation is deemed appropriate.
another is the buy order book vwap imbalance. a vwap is calculated for the buy-side of the order book, and the sell side as well. Think of macd's. When one diverges away from the other, you take that trade. Say the buy vwap starts to increase in slope, whilst the sell vwap is flat to negative in slope, you want to get with the trend, which is to buy, buy, buy.
Contrarian strats are put to use as well, easy concept, just fade the moves that are at statistical extremes (think of a bollinger band fade, for a simple example)
The truth is that many hedge funds have a treasure trove of strategies to use, that have been previously discussed, like arbs and the above info, and it lets the black boxes choose which strategy to use when the situation is deemed appropriate.