Meeting on 12/10/17 at 1pm, San Francisco

Our next meeting is scheduled for 12/10/17 (Sunday) at 1pm in San Francisco on the 2nd floor lounge of the Marriott Marquis (780 Mission Street).  See here for more information about the venue. Once you enter the hotel, go to the 2nd floor using the escalator and you will see a lounge with sofas and tables. Feel free to send an email if you have trouble finding it.

We will be starting a discussion on market microstructure. See here for paper.

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High Frequency Market Microstructure

From abstract:

“Markets are different now, transformed by technology and high frequency trading. In this paper, I investigate the implications of these changes for high frequency market microstructure. I describe the new high frequency world, with a particular focus on how HFT affects the strategies of traders and markets. I discuss some of the gaps that arise when thinking about microstructure research issues in the high frequency world. I suggest that, like everything else in the markets, the research we do must also change to reflect the new realities of the high frequency world. I propose some topics for this new research agenda in high frequency market microstructure.”

“High Frequency Market Microstructure.” Maureen OHara, Johnson Graduate School of Management, Cornell University. April 2014.

Link here.

Meeting on 11/12/17 at 1pm, San Francisco

Our next meeting is scheduled for 11/12/17 (Sunday) at 1pm in San Francisco on the 2nd floor lounge of the Marriott Marquis (780 Mission Street).  See here for more information about the venue. Once you enter the hotel, go to the 2nd floor using the escalator and you will see a lounge with sofas and tables. Feel free to send an email if you have trouble finding it.

We will be starting a discussion on high frequency trading. See here for paper.

High Frequency Trading and the New-Market Makers

From the abstract:

This paper characterizes the trading strategy of a large high-frequency trader (HFT). The HFT incurs a loss on its inventory but earns a profit on the bid-ask spread. Sharpe ratio calculations show that performance is very sensitive to cost of capital assumptions. The HFT employs a cross-market strategy as half of its trades materialize on a large incumbent market and the other half on a small, high-growth entrant market. Trade participation rates are 8.1% and 64.4%, respectively. In both markets, about four out of five of its trades are passive, i.e., its price quote was consumed by others.

“High Frequency Trading and the New-Market Makers.” Albert J. Menkveld. Dec. 2010 VU University Amsterdam; Tinbergen Institute – Tinbergen Institute Amsterdam (TIA)

See here for the paper. 

 

Meeting on 10/29/17 at 1pm, San Francisco

Our next meeting is scheduled for 10/29/17 (Sunday) at 1pm in San Francisco on the 2nd floor lounge of the Marriott Marquis (780 Mission Street).  See here for more information about the venue. Once you enter the hotel, go to the 2nd floor using the escalator and you will see a lounge with sofas and tables. Feel free to send an email if you have trouble finding it.

We will be starting a discussion on risk parity. See here for paper.

Introducing Expected Returns into Risk Parity Portfolios: A New Framework for Asset Allocation

Abstract

Risk parity is an allocation method used to build diversified portfolios that does not rely on any assumptions of expected returns, thus placing risk management at the heart of the strategy. This explains why risk parity became a popular investment model after the global financial crisis in 2008. However, risk parity has also been criticized because it focuses on managing risk concentration rather than portfolio performance, and is therefore seen as being closer to passive management than active management. In this article, we show how to introduce assumptions of expected returns into risk parity portfolios. To do this, we consider a generalized risk measure that takes into account both the portfolio return and volatility. However, the trade-off between performance and volatility contributions creates some difficulty, while the risk budgeting problem must be clearly defined. After deriving the theoretical properties of such risk budgeting portfolios, we apply this new model to asset allocation. First, we consider long-term investment policy and the determination of strategic asset allocation. We then consider dynamic allocation and show how to build risk parity funds that depend on expected returns.

“Introducing Expected Returns into Risk Parity Portfolios: A New Framework for Asset Allocation.” Thierry Roncalli, Amundi Asset Management; University of Evry,  April 2014. See here for paper.

Meeting on 10/15/17 at 1pm, San Francisco

Our next meeting is scheduled for 10/15/17 (Sunday) at 1pm in San Francisco on the 2nd floor lounge of the Marriott Marquis (780 Mission Street).  See here for more information about the venue. Once you enter the hotel, go to the 2nd floor using the escalator and you will see a lounge with sofas and tables. Feel free to send an email if you have trouble finding it.

We will be continuing our exploration of liquidity risk premia by discussing another approach. See here for paper.