What Worked Inward 2011?

We all know that 2011 was a bad twelvemonth for many hedge funds, amongst the average fund down 5%. But what type of strategies did well, together with what did peculiarly poorly? The numbers are out: Forex funds lose to a greater extent than than average, downwards 6%. In fact, 71 out of 77 Forex funds tracked past times a Citigroup currency analyst were downwards inwards 2011. And the winners are? Statarb funds, amongst a 5% averge return.

This superior surgical operation of statarb funds is quite a contrast from the final fiscal crisis 2007-9. Then, most of the large factor-driven statarb models failed miserably. What caused this difference? Is it because the conduct chances management techniques of large funds convey improved? Or perchance that's because inwards 2011, the divergence from constituent returns mean-revert inside a few days, together with then those statarb models that re-balance on a daily footing tin create goodness from the buying/selling chance at steep discount/premium?

To settle this question, permit me study the 2011 backtest results (without transaction costs) of running Andrew Lo's paradigm mean-reversion model : ranking stocks based on their previous day's returns, shorting the overstep decile together with buying the bottom one, rebalancing exclusively at the close. (Click on nautical chart to acquire far larger.)

The APR inwards 2011 was 18.6%. Note inwards item its surgical operation since the crisis began officially on 20110808: despite a steep drawdown, the overall surgical operation was spectacular! Clearly, high volatility benefited a prototypical statarb strategy, together with the out-performance has non much to create amongst improved conduct chances management.

You mightiness wonder what would hand if nosotros had used the intraday version of this strategy instead: endure into all positions at the open, together with endure out them all at the close? I tried it: the surgical operation is surprisingly similar to the interday strategy. So intraday vs. interday volatility or mean-reversion does non appear to play a purpose inwards final year's equities market. Contrasting this amongst the surgical operation of Forex models, it is clear that high volatilities benefited statarb models piece they wound FX models.

In the side past times side article or two, I volition explore the 2011 surgical operation of another equities mean-reverting models that I used to trade. But what almost your models? If you lot convey simply about thoughts on what worked together with what didn't inwards 2011, delight part them amongst us inwards the comments section.