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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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Survivorship Bias: An Academic Charade to Ignore Trend Following

From Wikipedia:

“Survivorship bias is the logical error of concentrating on the people or things that “survived” some process and ignoring those that didn’t.”

From the Wikipedia entry on me:

“Critics of Covel point out that his studies do not address survivorship bias.”

I challenge anyone to show me where the trend following failures are not outlined in my second book (as but one example). Not only are they outlined, the “whys” are explored.

Bottom line, if you are going to raise the flag of survivorship bias when discussing trend following, like Jim Cramer protégé David Merkel, you need to name those exact failures and outline the reasons for failure. Just saying there were failures, without being specific to anything, is a charade.


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