Ernie Chan claims that statistical arbitrage is better than momentum like trend

Discussion in 'Strategy Building' started by GloriaBrown, Aug 2, 2013.

  1. My last post using Ernie Chan terms in the topic making it so confusing so I want to make this new post to talk about what I really mean. Ernie Chan has two books and he claims that statistical arbitrage strategies with two or more derivatives (he means the term Mean-reverting to describe these ) are much better than any kind of "momentum" strategies like trend following.

    I don't know how to design a statistical arbitrage strategy to backtest to see which one is better. In his new book, he has like at least 6 math formula to find out a relationship between two derivatives before talking about strategies, and I still don't really get the real formula of these except a general concepts after reading like half of the book.

    Except being heavily talking about matlab and very likey matlab sponsor him, he talks very professionally and he had a lot of working experience in statistical arbitrage trading desk in banks and funds. He is not like other "coaches" that just talks without any real prove of making money.

    I am one of the active participates in his blog for months. I know if I ask him question like this, he would just reply what he said in his book, so I want to see how other think over here.

    For me who doesn't live in US, using statistical arbitrage is something not easy even not consider how to implement because

    1. I would need to access to many different derivatives and I have to do both long and short, which means I have to access to US markets since most of these are over there, while my time zone is exactly opposite to US, then I basically either stay awake every night. Even auto trading, I should stay awake to make sure everything goes well.

    2. Double commission with at least two derivatives instead of one. In his book there are no commission charge.

    3. I need to transfer my money to US dollars, then later transfer back to my own currency. I counted it and this is already at least a 0.2% cost.

    Of course if statistical arbitrage is really much more powerful, then all these 3 factors are almost nothing.

    So how do you guys think? I am still reading his book and just implement all of his math formula to test out a statistical arbitrage is already much harder than any momentum ways I know.

    Please share your thought:D
  2. seem like almost no one uses statistical arbitrage over here so no one replies.
  3. Eyez


    1. Whats the question?

    2. ??? ok?

    3. What does this have to do with the strategy?

    4. I think you answered the same irrelevant questions you asked.

    5. Are you asking what do I think about you living overseas and realizing in the real-world you pay commissions on trades?
  4. Do you agree with statistical arbitrage is better than momentum like trend? May be you have no clue and I am fine with this.
  5. They both have their role.

    Some will prefer one, some another, some both.

    It is like asking, which is better, apples or oranges? Cars or bicycles? Stocks or Forex or Futures?
  6. This case can be not apple/orange case if statistical arbitrage can provide a better winning chance and margin in general.
  7. he is the same snake oil salesman as all others, his niche pitch is "I am Mr. Quant and I promote quant strategies and quant books and quant bread, quant butter and quant jam".

    I have at times read his blog posts and was less than impressed having studied quant finance at a grad school level and worked at an exotic trading desk when I joined the fray (which was as quantitative as it can get). Nothing I have read that he has written sounds like he has the slightest inkling how to make money, other than of course SELLING BOOKS.

    P.S.: Nothing he has ever written can really be considered quantitative in nature, at least not as defined by hedge fund and sell side bank standards. Typical case of failed PhD level academician without a sense for how markets tick.

  8. do you know how stupid you sound like, I hope you are not but you most certainly sound like. If you do not want to burn your new alias that soon then I highly recommend to silence yourself.

  9. So what, really. Who is this Chinaman? There are 1.3 billion Chinamen in the world. Why should I take this one seriously? What makes him so qualified to make these pronouncements. Is he a market wizard like Paul Tudor Jones?
  10. Grandluxe you're out of your element! Dude, the Chinaman is not the issue here!
    #10     Aug 7, 2013
    cjbuckley4 likes this.