Registered: Nov 2006
01-29-12 09:58 PM
Quote from nitro:
[Some] Hedge Funds have been having a harder time, since about 2008 until today, with the last year being particularly difficult. I have been studying traditional highly cointetrated pairs (just the simplest case of two series), and watching their cointegration disintegrate in the past few years. So pairs like WMT TGT are no longer cointegrated at any lag, nor are pairs like KO and PEP. So my hypotheses is, I contend that the game has gotten much harder, and this is one of the reasons some traditional hedge funds are disappearing.
One thing that begs the question then is, did the dog wag the tail, or the other way around? In other words, did stocks trade in sync more often in the past because their value was similar and their earnings generation was pretty similar, or did they just trade that way because the players themselves caused this illusion by keeping the stocks trading in a range in relation to each other? If it is the former, what economic random variable accounts for the break from cotrending? Can the current economic recession have that much effect on businesses that are in an almost identical in the way they generate revenue?
i second that, i will post what a i heard from a deutsche bank fund manager that overlooked one of their long/short equity strategies that had an impressive track record during 10 years (in which i had money), while all the sudden began run south by the time LEH event took place and never recouped the losses ever since.
according to him, those models were created in a macroeconomic context that no longer prevail. the imbalances in world's economy altered the dynamics governing price valuation and thus the edge in those strategies disappeared. he hinted it has to do a eventual shift to a deflationary world in which the wealth destruction is far greater than the amount of fresh money printed by the central banks to keep the economy afloat.
this is just PR BS from a DB manager but anyway, is what they come up with in 2009. to be honest, i agree with him when it comes to weigh the influence of inflation or other important economic trends in price dynamics.