Looking for Anomalies: Lessons from Jim Simons (Video)
“Efficient market theory is correct in that there are no gross inefficiencies, but we look at anomalies that may be small in size and brief in time.” - Jim Simons, Founder, Renaissance Technologies Somewhere along the serendipitous journey, I had the good fortune to spend a flash of time with Jim Simons and a few key members of his team at Renaissance - see Jim Simons, Godfather of the Quants: Hiding in Plain Sight. He is certainly one [...]
Jane Street’s Twist on Stock Selection
"The real voyage of discovery consists not in seeking new landscapes but in having new eyes." - Marcel Proust Here's a quickie that's likely to raise a few eyebrows, if you're looking through the right lens: One of the greatest dividends that's just now starting to come from Alphacution's expanding library of models is the one that results from comparing a bunch of legendary trading firms with one another. In this case, what we are able to do [...]
The Legend of David E. Shaw: Hiding in Plain Sight
“Generations of human beings were transformed into machines in the relentless pursuit of material wealth: We lived to work.” - Jeremy Rifkin, The Third Industrial Revolution Founded in 1988 by former Columbia University computer science professor, David Shaw, above a bookstore in New York's Union Square, The DE Shaw Group is now reported to manage over $50 billion in assets. LCH Investments ranks it as the fourth-highest grossing hedge fund group of all time; among the ranks of [...]
Remembering Deutsche Bank: A Market Macro-Structure Canary?
"I don't want to sell anything, buy anything, or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed." - John Cusack as Lloyd Dobler, "Say Anything" Few others have captured our attention here at Alphacution like Deutsche Bank (DB). This phenomenon comes as a result of the collision of two facts: 1) a bulge bracket bank in an ongoing state of radical transformation which 2) [...]
How Many Heads Does It Take To Run A Bank?
< Insert inspirational employee-oriented quote here > There was a time when we dedicated a lot of effort on these pixelated pages to the impacts of technology on the bulge bracket investment banks and other major sell-side players. We even set out to tracking the aggregate headcounts of the top 9 investment banks - a Headcount Index, of sorts - as one paradoxical attempt to quantify the adoption of technology, and therefore, the implied pervasiveness of workflow automation [...]
Simplex Trading’s Book: An Educational Tool Hiding in Plain Sight
"My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time." - Steve Jobs If you happen to be reading this note while occupying a seat at a firm like Wolverine Trading or Peak6 or D. E. Shaw or AQR or any number of other mythological market creatures that we have yet to model, please don't fret. We will get to you soon enough... For now, we are [...]
Hudson River Trading’s Book: Hiding in Plain Sight
“Any fact becomes important when it's connected to another.” - Umberto Eco, Foucault's Pendulum It is always fascinating to experience the fleeting juxtaposition of data and mythology. Before, there is only mythology, where almost anything is possible. And then, data enters the picture and for a brief moment they coexist until mythology dissipates and is forever changed. Students of this game are often aware of the lists of notable proprietary trading firms and other secretive trading entities, but there [...]
Prelude to Deconstructing Susquehanna International Group
"Design is not just what it looks like and feels like. Design is how it works." - Steve Jobs In the lead up to the publication of our next case study on legendary derivatives trading powerhouse Susquehanna International Group (SIG), I wanted to provide context on how the proverbial sausage is actually made: Maybe it is true of most firms across most industries, but what we have found in the trading business is that companies tend to become [...]
The Physics of Market Structure – Part 1
"Learn how to see. Realize that everything connects to everything else." - Leonardo DaVinci Capital formation... Price discovery... These are the primary goals of market structure mechanisms. A place to gather - whether that place be a Buttonwood tree or a bank of caged servers - and a playing field framed with enough freedom for participants to discover and set asset prices based on publicly available information. Now, as most of you know, this opening salvo can go [...]
Who is Group One Trading?
"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it." - Henry Ford Please forgive me for trying to squeeze just one more reference to HBO's hit series out of the tube, but it turns out that "GoT" is not the only G.O.T. In our current mission to focus on those notable players who thrive in closest proximity to the sources of market liquidity (in order to quantify their impact [...]
