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Ep. 554: The Yale Model with Michael Covel on Trend Following Radio

The Yale Model with Michael Covel on Trend Following Radio
The Yale Model with Michael Covel on Trend Following Radio

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Please enjoy my monologue The Yale Model with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.

In this episode of Trend Following Radio:

  • Yale Endowment
  • Portfolio management
  • Black box trading
  • Mean variance analysis
  • Harry Markowitz
  • Passive index
  • Forecasting

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Volatility as the Measure of Risk; Not Wise

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Greetings Mr. Covel,

During one of your recent podcasts, you and Wesley Gray were discussing how the academic community considers the volatility of an asset’s price to be its risk while you and Gray consider the permanent loss of the capital invested in an asset to be its risk. Many years ago, I read an interview of Harry Markowitz where he stated that he used volatility to measure the risk of an asset because “it made the math easy.” I was completely shocked. The father of Modern Portfolio Theory chose his measure of risk based on its mathematical convenience.

I searched for the interview again because I wanted to send a link of it to you so that you could read it for yourself. Unfortunately, I could not find the interview but I still remember the feeling of complete shock that I felt when I read that Markowitz chose volatility as the measure of risk because “it made the math easy.”

What is your understanding of how volatility became the primary measure of risk in finance?


I don’t believe Markowitz believed that as you state, but rather was designing for theory. As you might recall he was surprised that modern finance was built off his work. He wrote the PhD paper, and others extrapolated his work into something else. Markowitz, himself, stated that “semi-variance is the more plausible measure of risk.”

But I have also see this:

“I would’ve created CAPM around semi-variance, but no one would have understood the math and I wouldn’t have won Nobel Prize…” –Harry Markowitz

Harry Markowitz
Harry Markowitz

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Ep. 359: Campbell Harvey Interview with Michael Covel on Trend Following Radio

Campbell Harvey
Campbell Harvey

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My guest today is Campbell Harvey, a finance professor at Duke university, and research associate with the National Bureau of Economic Research in Massachusetts. His research papers on these subjects have been published in many scientific journals.

The topic is Trend Following.

In this episode of Trend Following Radio we discuss:

  • Survivorship bias, and not being fooled by randomness
  • Why people with higher risk tolerance experience much higher upsides
  • Understanding process vs. outcome
  • The difference between volatility and skew
  • The importance of recognizing that asset returns are rarely “normally distributed”
  • When it is appropriate to apply a general framework, and when it is not
  • The Sharpe ratio – is it always relevant?
  • Harry Markowitz, Jim Simons, and Nassim Taleb

“These people that are taking a lot of risk, with enough luck, will rise to the top. The person that is risk-averse is stuck in the middle” – Campbell Harvey

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Ep. 235: Harry Markowitz Interview with Michael Covel on Trend Following Radio

Harry Markowitz
Harry Markowitz

My guest today is Harry Markowitz, the third Nobel Prize winner to appear on this podcast. Markowitz is an American economist who received the 1989 John von Neumann Theory Prize and the 1990 Nobel Memorial Prize in Economic Sciences. Markowitz is a professor of finance at the Rady School of Management at the University of California, San Diego.

The topic is modern finance.

In this episode of Trend Following Radio we discuss:

  • Justin Fox and “The Myth Of The Rational Market”
  • Markowitz’s beginnings, and the Nobel Prize
  • Markowitz’s 1952 paper
  • How Markowitz felt about some of his prescriptions and ideas being interpreted into dogma
  • Why Wall Street was not interested in Markowitz’s theories at one time
  • Diversification for the right reason
  • Markowitz’s new four-volume book
  • Advice on maintaining mental acuity at an advanced age and sounding like you’re 35 when you’re 86 years young
  • Markowitz’s attraction to the philosopher Hume
  • If it was fifty years later, if Markowitz would be a quant running a hedge fund today
  • Markowitz’s legacy
  • On being comfortable vs. being rich
  • The leveraged long-only hedge fund industry and being coaxed into putting your money into these institutions
  • Long Term Capital Management and portfolio theory

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