Cheap Volatility: A Lesson In Market Structure Mechanics

"The world breaks everyone, and afterward, some are strong at the broken places." - Ernest Hemingway   Alphacution has always been fascinated by the players. Unlike the world of sport, market players have unique potential to influence the field of play, and thus create a feedback loop that influences other players, and so on causing market ecosystem evolution. In this game, the rulemakers and overseers - the referees - are typically playing catch up... This is not to suggest that markets don't have naturally occurring limits in addition to those that are imposed by referees. They do. There are always capacity constraints, given performance requirements and performance expectations; and so, we are further fascinated by how players navigate - how they survive, thrive and scale (or not) - relative to the inevitability of market limitations, many of which are currently not well understood. Throughout these digital pages, Alphacution has plotted a journey to fill this unmet need for understanding -  presenting the output of our fascinations - the stories of [...]

By | 2020-05-05T18:22:20+00:00 May 1st, 2020|Alphacution Feed|

AQR Capital Management: The Ominous Shapes of Strategy

"The cave you fear to enter holds the treasure you seek." - Joseph Campbell   For 12 straight years beginning Q4 2001, AQR Capital Management, LLC (AQR) - one of the great and legendary quant hedge funds of the current era - grew equity positions until peaking at 2,346 (long equity) positions by Q4 2013. Since that time, AQR's long US equity book has found an ominously consistent plateau averaging 2,140 positions. Here, in what would normally seem to be a benign factoid, lie the seeds of the story for why AQR has been suffering performance challenges of late; and, apparently, performance challenges for the foreseeable future according to co-founder and front-man, Cliff Asness. We start that story with the exhibit, below, where Alphacution presents the full 72-quarter record of total 13F (long) positions for the lineage of AQR Capital Management entities beginning Q4 2001 and ending Q3 2019. With these first shapes, we want to highlight that stocks are the dominant product class, thereby implying that there is little [...]

By | 2020-03-01T22:17:17+00:00 February 9th, 2020|Alphacution Feed|