Rule Based Investing: Designing Effective Quantitative Strategies for Foreign Exchange, Interest Rates, Emerging Markets, Equity Indices, and Volatility

Rule Based Investing: Designing Effective Quantitative Strategies for Foreign Exchange, Interest Rates, Emerging Markets, Equity Indices, and Volatility

Rule Based Investing: Designing Effective Quantitative Strategies for Foreign Exchange, Interest Rates, Emerging Markets, Equity Indices, and Volatility

Use rule-based investment strategies to maintain trading and investment discipline, and protect yourself from fear, greed, pride, and other costly emotions! Since the mid-1990s, assets under management in rule-based or non-discretionary hedge funds have outgrown those in discretionary or qualitative funds. Recent research shows that rule-based funds have outperformed discretionary funds on a risk-adjusted basis over the past 30 years, and have especially outperformed during recent financial cris

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2 comments

  1. David Merkel "Aleph Blog" says:
    31 of 32 people found the following review helpful
    3.0 out of 5 stars
    Another Book Review from the Aleph Blog, January 2, 2014
    By 
    David Merkel “Aleph Blog” (Ellicott City, MD United States) –
    (REAL NAME)
      

    This review is from: Rule Based Investing: Designing Effective Quantitative Strategies for Foreign Exchange, Interest Rates, Emerging Markets, Equity Indices, and Volatility (Hardcover)
    Everyone would like a “money machine.” Follow simple rules, and “Wow, this makes money.” This is that kind of book but it has better foundations than most in its class.

    The book examines three types of investing, most of which are foreign to average investors. Most investors don’t invest in equity by shorting it, and most investors are not currency traders.

    But that is what the book encourages. I’m going to digress here, because I have to explain some salient matters, and say what I think, so that my later critique makes sense.

    Volatility and credit are cousins. After all when markets go nuts, and everything is in disarray, those that have been trying to borrow at low interest in one currency, and invest at higher interest in another currency get hosed. Why? Because in volatile times, the riskier currencies face capital flight versus safer currencies that have the confidence of the markets.

    All of the methods mentioned in this book as a result are making bets on volatility/credit, and try to control the bet by monitoring implied volatility, credit spreads, and momentum. They limit when they are in the market and when they are out.

    I don’t have a problem with the theory here, but with the ability of average people to carry it out. This book would be good for quantitative hedge fund managers; I am less certain about individuals here.

    As an aside, what the book describes is how PIMCO has done so well at bond investing over its history — shorting volatility to pick up yield.

    But the main criticism is this: the author optimized the book to fit her full data set. When you read the last chapter, and see that you could have earned 30%+/year for 13 years, if you were as clever as the author, you should think, “Yes, if I had 20/20 foresight.” The methods will not do as well in prospect as in retrospect.

    Quibbles

    There is little that I disagree with in the book on a theoretical basis. Where I differ comes in two areas: individual investors will not have the fortitude to carry out what is a complex method of investment. Secondly, when enough hedge fund money adopts these strategies, the pricing in the market will shift, and the hedge funds will no longer have easy money.

    Who would benefit from this book: If you are willing to do the work of a volatility-selling hedge fund manager, this is the book for you.

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  2. Amazon Customer says:
    4 of 5 people found the following review helpful
    5.0 out of 5 stars
    Excellent! Can’t wait for the next one!, February 14, 2014
    By 
    Amazon Customer (New York, NY) –

    This book is easily one of the best books on tactical allocation (my interpretation – you may differ) I’ve read in a while. It is clearly aimed at the trader with a good grasp of statistics and/or econometrics; the author assumes a basic understanding of financial markets and math, and proceeds to walk you through some standard (but computationally intensive) setups. She covers trading volatility (in the form of the increasingly popular VIX-based ETFs), currency investing (the classic carry trade, enhanced), and investing in emerging markets. At the end of her crisp narrative, she promises to write follow-on books covering international equities and commodities. I look forward to that.

    To sum up, sometimes there are books that are so good one hesitates to recommend them to others, secretly dreaming of buying up all copies in existence and pulping them. This is one of those books. Buy it. Use Google. Do the math yourself. ???. Profit.

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