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 is use the aggregate value of product class exposures along with total product class positions through time to determine the weighted average implied price of that product class.

The obvious product class to look at in this way first is cash equities. In the chart below, Alphacution presents the various time series’ of average implied stock prices for each of a selection of some of the most legendary trading firms and hedge funds of all time, including our latest modeling on D. E. Shaw, Bridgewater, Susquehanna, Citadel, Millennium and Renaissance Technologies.

Here, you will notice that each of these wiggly lines fall roughly in a range that most recently spans a low of about $20 to a high of about $50. In essence, this chart illustrates that each firm’s portfolio is selected from a roughly similar sample of stocks but that the variance in average price is caused by specific stock selections and position concentrations.

Now, observe the same chart when we add the data for Jane Street…

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By | 2019-07-17T23:11:34-04:00 July 17th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.