Jean-Philippe Bouchaud speaks with Michael Covel on his second visit to the podcast. He is founder and Chairman of Capital Fund Management (CFM) and professor of physics at École polytechnique. Today, Covel and Bouchaud focus on Bouchaud’s co-authored paper, “Tail Risk Premia vs. Pure Alpha”. Additionally, Covel and Bouchaud discuss his firm’s performance for 2014; whether trend following actually “died” prior to it’s “reappearance” in 2014; what trend following manages to exploit; exploiting vs. exploring; looking at volatility as a precursor to profit; volatility as a measure of risk; trend following as a genuine market anomaly; the behavioral biases in play as oil has fallen fifty percent plus; the feedback Bouchaud has received from peers on his newest paper; whether other strategies exploit a genuine market anomaly; Bouchaud’s philosophy on transparency and “secrets” in his work; and why Bouchaud’s work culture is not a culture of MBA’s. Note: In this episode a white paper is mentioned. There are short (www.trendfollowing.com/cfm-short.pdf) and long (www.trendfollowing.com/cfm-long.pdf) versions.
Jean-Philippe Bouchaud, Chairman of Capital Fund Management, passed along a new paper Tail Risk Premia vs. Pure Alpha.
Michael Covel speaks with Dr. Jean-Philippe Bouchaud. Bouchaud is Chairman of the multi-strategy quantitative hedge fund Capital Fund Management (5B+ AUM) and co-supervisor of the research team. He is a well known authority in the field of Econphysics, co-author of “Theory of Financial Risks and Derivative Pricing”, a Professor of École Polytechnique where he teaches Complex Systems and has his Ph.D in theoretical physics from École Normale Supérieure. Covel and Bouchaud discuss Bouchaud’s physics background and how it collided with the world of classical economics; the Black-Scholes model, and it’s still use; experimenting with simulation; Jean Philippe Bouchaud and his colleague’s paper, “Two Centuries of Trend Following“; the efficient market hypothesis; why the existence of trends is one of the most statistically significant anomalies in financial markets; how trends predate trend following; why classical economics has no framework through which to understand “wild markets”; benign randomness vs. wild randomness; accepting uncertainty; and differences between physicists and economists. For more information on Jean-Philippe Bouchaud, visit www.cfm.fr.