We think that the best way to generate consistent returns is to develop strategies that are capable of adapting to changing market conditions.
This is the essence of the Adaptive Markets Hypothesis applied to investment management.
Our investment philosophy is based on the Adaptive Markets Hypothesis, a theory of market behavior proposed by AlphaSimplex’s Chairman and Chief Investment Strategist, Dr. Andrew W. Lo. It is premised on the idea that markets are made up of people whose judgments are based on a broad set of factors that are not always easily measured and the relative importance of which are subject to change. As a result, the inter-play between market risk and return is often based on investor perceptions rather than actual market risk. This misalignment can cause investor expectations and experience to deviate sharply, sometimes with unfortunate consequences, but it also creates opportunities for disciplined systematic investment processes.
What we believe
– Market dynamics and efficiency will vary over time and investment strategies must allow for this
– Risk premiums, market volatility, and cross-asset correlations will vary over time
– Any single model’s effectiveness will vary over time
– Sophisticated risk, model, and factor attribution analytics can help identify opportunities for innovation and adaptation
– Risk management can be an important source of alpha
- The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective [PDF]
- Adaptive Markets and the New World Order [PDF]
Today’s rapidly changing market dynamics call for investment strategies designed with the ability to adapt.