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Eric,
If you trust the Hedge Fund mangers you need to read the book about
downfall of Long Term Capital the biggest hedge fund in the past
decade. It all but brought down the entire financial markets. See:
www.erisk.com/Learning/CaseStudies/ref_case_ltcm.asp
R.E. (Dick) Hoierman
--- In amibroker@xxxxxxxxxxxxxxx, eric paradis
<thechemistrybetweenus@xxxx> wrote:
>
> Either way, I'll trust the opinion of hedge fund
> managers with 30+ years experience who I'll assume
> their records speaks for itself.
>
>
>
> --- cwest <cwest@xxxx> wrote:
>
> > In the context of back testing a trading system, I'd
> > agree that profitable
> > outliers will impair its merit when the results are
> > measured on a risk
> > adjusted basis. In other words, an ounce of good
> > luck if you will becomes a
> > paradox. When measuring results on a risk-adjusted
> > basis it's probably a
> > valid approach to exclude outliers provided that
> > additional risk wasn't
> > incurred to obtain the profit. Analogous to winning
> > something from a lottery
> > when the loss of the cost of a ticket isn't
> > relevant. I don't think that's
> > real-world in terms of designing and developing a
> > trading system.
> >
> > _____
> >
> > From: amibroker@xxxxxxxxxxxxxxx
> > [mailto:amibroker@xxxxxxxxxxxxxxx] On Behalf
> > Of Fred
> > Sent: Wednesday, December 14, 2005 5:19 PM
> > To: amibroker@xxxxxxxxxxxxxxx
> > Subject: [amibroker] Re: What metrics do you use for
> > comparing systems ?
> >
> >
> > Price ?! risk or Equity Curve risk ?
> >
> > The problem with Sharpe is that by it punishes
> > upside "anomolies", if
> > you can call them that on the equity curve. I'll
> > take
> > uncharacteristic upside movement in the equity curve
> > every day.
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "cwest"
> > <cwest@xxxx> wrote:
> > >
> > > I don't know anything about "Mulvaney," but it
> > seems that the
> > essence of his
> > > comments which you quoted is an effort to
> > discredit the use of the
> > standard
> > > deviation to measure risk. Not including the
> > inherent risk of
> > outliers,
> > > whether a trading system was designed to capture
> > those trades or
> > not,
> > > introduces skewing. The Sortino ratio does just
> > that--it assumes
> > that only
> > > downside risk is important.
> > >
> > > Given that a trading system is intended to
> > short-sell (as well),
> > then it's
> > > necessary to consider all price risk. I'm open to
> > any suggestions
> > that might
> > > be a better performance benchmark, but so far
> > measuring returns on a
> > > risk-adjusted basis is unequivocally the
> > consensus.
> > >
> > > Colin West
> > >
> > > _____
> > >
> > > From: amibroker@xxxxxxxxxxxxxxx
> > [mailto:amibroker@xxxxxxxxxxxxxxx]
> > On Behalf
> > > Of eric paradis
> > > Sent: Wednesday, December 14, 2005 2:19 PM
> > > To: amibroker@xxxxxxxxxxxxxxx
> > > Subject: Re: [amibroker] Re: What metrics do you
> > use for comparing
> > systems ?
> > >
> > >
> > > You will absolutely not have a high sharpe ratio
> > if
> > > you have a long-term trend following system in
> > either
> > > equities or futures.
> > > Trend followers have made many statements as to
> > why
> > > low sharpe ratios exist in funds that average
> > 20-100%
> > > returns in any given year due to outlying trades.
> > >
> > > The low Sharpe Ratio is due to the outlying
> > winners,
> > > and their effect on the Sharpe Ratio calculation.
> > This
> > > quote, taken from trendfollowing.com, discusses
> > the
> > > negative side of using a Sharpe Ratio to calculate
> > > risk versus return-
> > >
> > > ( Mulvaney also notes that conventional measures
> > of
> > > risk-adjusted returns (i.e. Sharpe ratio) miss the
> > > boat:
> > >
> > > "Implicitly using the standard deviation assumes
> > that
> > > the returns are normally distributed. But in
> > >
> > > fact our returns stream is very positively skewed,
> > and
> > > highly asymmetrical. Our standard
> > >
> > > deviation is extremely high but this is because of
> > the
> > > positive outliers. The standard deviation
> > >
> > > involves squaring the deviations from the mean and
> > the
> > > outliers are what really push it up. So a
> > >
> > > very strong case can be made that CTAs'
> > performance is
> > > severely penalized by the Sharpe
> > >
> > > ratio." )
> > >
> > > -Eric
> > >
> > > --- sebastiandanconia <sebastiandanconia@xxxx>
> > > wrote:
> > >
> > > > "...fwiw, very few mutual funds exceed 1.0 MSR
> > :).
> > > > Very good hedge
> > > > managers obtain 2.0+ MSR...
> > > >
> > > > Interesting! Thanks, Colin.
> > > >
> > > >
> > > > S.
> > > >
> > > >
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "cwest"
> > > > <cwest@xxxx> wrote:
> > > > >
> > > > > My favorite subject/issue--performance
> > > > measurement. The most
> > > > preferred
> > > > > benchmark by which investment and/or trading
> > > > results are measured
> > > > is the
> > > > > Sharpe ratio. However, imo there's a valid
> > > > modification one should
> > > > make to
> > > > > this measure. The Sharpe ratio assumes the
> > > > risk-free rate is the
> > > > interest
> > > > > rate of 90 day Government paper. That's
> > > > unreasonable as there are
> > > > plenty of
> > > > > alternatives that aren't classified as junk
> > > > paper--270 day BBB+
> > > > Corporate
> > > > > notes, for example. Even GM short-term paper
> > is
> > > > still pretty much
> > > > risk-free!
> > > > >
> > > > > Therefore, a modified Sharpe ratio (MSR) would
> > be:
> > > > annualized daily
> > > > average
> > > > > return less the Corporate short-term interest
> > > > rate, divided by the
> > > > standard
> > > > > deviation of the annualized daily average
> > return,
> > > > is 'my' benchmark
> > > > for
> > > > > investment and/or trading. When calculations
> > are
> > > > annualized short-
> > > > term or
> > > > > long-term isn't too relevant.
> > > > >
> > > > > If your trading systems can't exceed 1.5
> > MSR--the
> > > > higher the number
> > > > the
> > > > > better the performance--it's back to the
> > drawing
> > > > board. fwiw, very
> > > > few
> > > > > mutual funds exceed 1.0 MSR :). Very good
> > hedge
> > > > managers obtain
> > > > 2.0+ MSR.
> >
> === message truncated ===
>
>
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