Tail protection for long investors: Trend convexity at work

Dao, Tung-Lam; Nguyen, Trung-Tu; Deremble, Cyril; `ere, Y. Lemp 'eri; Bouchaud, Jean‐Philippe; Potters, Marc

doi:10.48550/arxiv.1607.02410

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2017

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“…2 As is well known, trend following strategies offer an hedge against market drawdowns (see e.g. [19]); value strategies offer a hedge against over-exploited trends. As a consequence, we find that mixing both strategies significantly improves the profitability of the resulting portfolios.…”

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confidence: 99%

Black Was Right: Price Is Within a Factor 2 of Value

et al. 2017

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We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black's intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types of behaviour in financial markets: "chartists", who act as trend followers, and "fundamentalists", who set in when the price is clearly out of line. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance of financial markets.

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Section: Discussionmentioning

confidence: 99%

Black Was Right: Price Is Within a Factor 2 of Value

et al. 2017

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“…For example, shorting SPX options (at constant expected risk) generates a strategy with a Sharpe of 1.5 and a skewness of −4.6. There are exceptions to this rule, for strategies that cannot reasonably be understood as "Risk Premia", such as trend-following itself that has both a positive Sharpe and a positive skewness (see [4] for an extended discussion of this point).…”

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Trends and Risk Premia: Update and Additional Plots

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Hoehener,

Lempérière

et al. 2017

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Tail protection for long investors: Trend convexity at work

Cited by 2 publications

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Black Was Right: Price Is Within a Factor 2 of Value

Black Was Right: Price Is Within a Factor 2 of Value

Trends and Risk Premia: Update and Additional Plots

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