Get documents about "Murray
Document Sample
For professional investors
Applications of behavioural finance in quantitative modeling
Eoin Murray: Head of Quantitative Strategies
November 2005
OMAM
> A rapidly growing specialist investment manager; focused on high performance and
absolute return products
> Independent investment teams; centralised risk management
> US$7.7 billion assets under management*
> Backed with seed capital by Old Mutual plc, a FTSE 100 company
2
* Source: OMAM, as at 31/10/05.
Business platform
Business infrastructure
Business
Legal Investment teams Management
Quantitative
Risk Strategies
Finance
Management
Distribution
Clients Fixed Seed
Marketing Equities Capital
Interest
Investor Relations
Investment Product
Operations Multi Strategy Development
Products
Manager
Systems
Recruitment
3
Quantitative strategies
> Global and regional equity long-only
> Multi-asset class
> Global equity market neutral
> Global equity long/short
Products in development
> Global macro
> Technology long/short fund
> Volatility arbitrage
4
Quantitative strategies
> Experienced portfolio management team
> In depth and focused research team
> Currently manage nearly US$2bn in quantitative hedge fund strategies
> Proven process
> Existing framework
> Track record:
Old Mutual Global Equity Market Old Mutual GEM Plus Fund
Neutral Fund Limited Limited
> Launch: December 2001 > Launch: May 2003
> Annualised performance: 7.3% > Annualised performance: 12.5%
> Annualised volatility: 4.2% > Annualised volatility: 6.8%
> Sharpe ratio: 1.3 > Sharpe ratio: 1.5
5
Source: OMAM, as at 31/10/05.
Investment philosophy
> Market inefficiencies result from behavioural biases and structural anomalies
> Investment insights, not statistics, drive research
> Rigorous backtesting of data to validate investment criteria
> Continuous research to maintain and enhance Sharpe ratio
> Multi-factor models designed to perform throughout the business cycle
6
Are there systematic patterns we can exploit?
> Systematic patterns
– affect all stocks in aggregate
– appear as behavioural biases
- based on psychology
- investors are sometimes irrational
- persist due to limits to arbitrage
7
Behavioural biases …
> Overconfidence
– people are generally overconfident of their own judgement
> Limited attention
– there are limits to the amount of information we can process
> Prospect theory
– attitudes to risk are not symmetric
8
… lead to investment insights
> Differences of opinion (overconfidence)
– stocks where investors disagree more will be further overpriced and
earn lower future returns
> Earnings quality (limited attention)
– investors tend to focus on the quantity rather than the quality of
reported earnings
> The disposition effect (prospect theory)
– investors predisposed to sell past winners in preference to past losers
9
Ongoing research
Investment intuition drives the process
V-Lab
Academic Advisory
Quantitative Board
Strategies team
Broker research
Idea generation
10
Change control process
Formalised procedure
11
Global Equity Market Neutral
Investment process
Trade
cost
model
Relative Optimisation
Risk
return and portfolio
model
model construction
Continuous research on
all three proprietary
Trade list
models and process
12
Academic consultants
Dr Nicholas Barberis
Professor of Finance
Yale School of Management
Previously, Nick was an Associate Professor of Finance at the University of Chicago Graduate School of Business; he
has also held visiting professorships at Harvard University and at London Business School. B.A. (mathematics),
Cambridge University, 1991; Ph.D. (business economics), Harvard University, 1996; Publications include Style Investing
(with A Shleifer), Journal of Financial Economics (2002), and A Model of Investor Sentiment (with A Shleifer and R
Vishny), Journal of Financial Economics (1998).
Dr Peter Pope
Professor of Accounting and Finance
Lancaster University Management School
Previously he was the Touche Ross Professor at Strathclyde Business School and visiting professor at the Stern School,
New York University and the University of California at Berkeley. He is the Academic Co-ordinator of the Institute of
Quantitative Investment Research and a member of the UK Accounting standards Board Academic Panel.
Dr Stephen Satchell
Reader in Financial Econometrics, and Fellow of Trinity College
University of Cambridge
Academic Advisor, Alpha Strategies; Advisory Panel, IFC (Subsidiary of the IMF); U.K. Representative, Pension Research
Institute (State University of California); Fellow, Pensions Institute (Birkbeck College); Visiting Professor, City Universit y;
Visiting Professor University of Technology, Sydney; Visiting Professor Birkbeck College; Visiting Lecturer, University of
Oxford, applied mathematical finance diploma.
13
Academic consultants (cont’d)
Dr Lionel Martellini
Professor of Finance and Director Research
EDHEC Risk and Asset Management Research Centre
Lionel Martellini is a Professor of Finance at EDHEC Business School and the Scientific Director of the EDHEC Risk and
Asset Management Research Centre. A former member of the faculty at the Marshall School of Business, University of
Southern California, Dr. Martellini conducts active research in quantitative asset management and derivatives valuation.
He is on the editorial board of the Journal of Alternative Investments and the Journal of Bond Trading and Management,
and on the editorial advisory board of the Journal of Portfolio Management.
14
Regulatory information
This document is being issued inside and outside the United Kingdom by Old Mutual Asset Managers (UK) Limited (‘OMAM’) (which is regulated by
the Financial S ervices Authority (the ‘FSA’)) only to and/or is directed only at persons who are both a) intermediate customers or market
counterparties for the purposes of the FSA Conduct of Business Sourcebook (‘COBS’) and b) of a kind to whom the Fund may lawfully be promoted
by a person authorised under the Act (an ‘authorised person’) by virtue of Section 238(5) of the Financial Services and Markets Act 2000 (the ‘Act’)
and Annex 5 to Chapter 3 of COBS. The shares in the Old Mutual Global Equity Market Neutral Fund Limited and the Old Mutual Gem Plus Fund
Limited (the ‘Funds’) are only available to such persons and this document must not be relied on by any other persons.
This document is exempt from the scheme promotion restriction (in Section 238 of the Act) on the communication of invitations or inducements to
participate in unregulated collective investment schemes on the grounds that it is being issued to and/or directed at only the types of person
referred to above. Any recipient of this document who is not an authorised person may not distribute it or otherwise promote the Funds to any other
person.
The Funds are unregulated collective investment schemes for the purposes of the Act and the rules of the FSA. The Funds are registered as
regulated mutual funds with the Cayman Islands Monetary Authority under Section 4(3) of the Mutual Funds Law (2001 Revision) of the Cayman
Islands. The investment activities of the Funds will not be regulated or otherwise overseen by the Cayman Islands Government.
The information in this document should not be construed as a solicitation to invest in the Funds or be relied upon for the purpose of making an
investment in the Funds. Before investing in the Funds prospective investors should read the Fund prospectus and consult with their own
professional advisors on the suitability of such an investment. Investors may rely only on the information contained in the Fund prospectus for
which OMAM takes no responsibility.
Please remember that the value of an investment and the income from it can go down as well as up and that you may not get back the full amount
invested. Past performance is not a guide to future performance. Exchange rate fluctuations can also affect both capital and income values.
Old Mutual Asset Managers (UK) Limited is the investment manager of the Funds and is authorised and regulated by the Financial Services
Authority.
Old Mutual Asset Managers (UK) Limited, 2 Lambeth Hill, London EC4P 4WR, England. Registered in England No. 2949554
15
H825/11/05
