VOL08: Adaptation To Change ft. Jean-Philippe Bouchaud
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 19 January 2022
⏱️ 62 minutes
🧾️ Download transcript
Summary
Hari Krishnan is joined today by Co-Founder & Chairman of Capital Fund Management (CFM) Jean-Philippe Bouchaud, to discuss how news drive price action, and some of the science behind the large price movements, how we should think about adapting to changing dynamics such as correlations, Jean-Philippe’s background in physics and journey into finance, the effectiveness of the Bloomberg terminal, using dimensional analysis for research purposes, the inelastic market hypothesis, differentiating yourself as a Trend Follower, and the connection between volatility strategies and high frequency data.
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In this episode, we discuss:
- The extent to which news drives price action
- How to look at ever-changing market dynamics, such as correlations
- Jean-Philippe's journey into finance
- The reliability of the Bloomberg terminal
- Dimensional analysis
- The inelastic market hypothesis
- Standing out in the Systematic Investor space
- Volatility strategies and if they have any connection to high-frequency data
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Episode TimeStamps:
00:00 - Intro
02:38 - What area of physics did you work in, and how did you come into finance?
05:04 - Can you elaborate the paper you worked on, where you where you investigated the endogeneity of large price moves?
15:24 - How timely do you consider the Bloomberg feed to be? Is it quick enough?
19:18 - How do we stitch together the two ideas of micro market data
28:20 - Do you the believe in the research that is carried out using dimensional analysis?
32:58 - Do you think that the inelastic market hypothesis was driven by flows into passive vehicles?
37:13 - Regarding the biggest stocks in the S&P 500, is it true that if one stock is 10 times bigger than another stock, and it gets 10 times the dollar allocation, that the price impacts will be the same?
40:13 - Can you tell us about your journey so far with CFM?
50:21 - Do you still do Trend Following, and if so, how do you do it different from a standard Trend Follower?
52:08 - If you kill the beta in a Trend Following program, do you lose the convexity?
52:38 - What’s the relation between volatility and higher-frequency momentum systems, in your view?
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Transcript
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| 0:00.0 | And Didier Sonnet has worked on something very similar, but in different contexts, in social media context. |
| 0:13.0 | So, for example, you can look at YouTube views or book sales on Amazon, and here you see exactly the same distinction between endogenous jumps due to the self-excitation |
| 0:27.9 | of the system and exogenous jumps due to the interview of the author of the book. |
| 0:33.9 | And so what you see is that exactly the same, you see profiles that are pretty flat before the jump |
| 0:39.3 | and then relaxation after the jump in the case of an exogenous jump, |
| 0:45.3 | triggered by real events, so to say. |
| 0:48.3 | And you see a much more symmetric type of profile for endogenous events. |
| 0:59.8 | For me, the best part of my podcasting journey has been the opportunity to speak to a huge |
| 1:05.0 | range of extraordinary investors from all around the world. In this series, I've invited one |
| 1:09.8 | of them, who also happens to be a |
| 1:11.6 | longtime friend, namely Harry Christland, to host a series of in-depth conversation on the topics |
| 1:17.3 | of volatility, risk, and portfolio protection. In today's world, portfolio construction is fast |
| 1:23.5 | moving to the top of the agenda of many investors as they try to analyze and understand |
| 1:28.4 | the riskiness of their portfolio. |
| 1:31.2 | With ever increasing uncertainty around the globe, knowing if you are essentially long or |
| 1:35.2 | short volatility in your portfolio can mean the difference between ruin and survival when |
| 1:40.6 | the next crisis emerge. |
| 1:43.0 | The aim of these conversations is to try and understand the experiences |
| 1:46.3 | that have influenced these highly specialized market participants |
| 1:50.1 | and the processes they follow to harness their returns |
| 1:53.7 | so that we can all become better informed investors. |
| 1:57.2 | And with that, please welcome Harry Christen. |
... |
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