IL Economics Association Annual Conference.
October 19, 2012.
Presenting "Decoding the Myths of Managed Futures"
Mark Shore writes economics / markets columns for the Chicago Board of Options Exchange's Chicago Futures Exchange (CFE) Volatility Newsletter, Eurex Exchange, Microcap Review, and Seeking Alpha among others.
• "Why are Congressional Agricultural Committees Given Oversight of the MF Global Hearings", Reuters HedgeWorld (Dec 2011)
• "Overlaying Strategies in Managed Futures: Does it Help an Investor?", Reuters HedgeWorld (August, 2011)
• "Decoding the Myths of Managed Futures", Suite101.com (February 2011)
• “Introducing Alternative Investments in a Traditional Portfolio: The Case of Commodities, Hedge Funds,and Managed Futures”, The Handbook of Commodity Investing, Wiley & Sons (July 2008) See abstract below
•“Introduction to Risk Management”, Octane Oracle (February 2008)
•“Skewing Your Diversification”, Hedge Funds: Insights in Performance Measurement, Risk Analysis, and Portfolio Allocation, Wiley & Sons (Aug 2005)
•“Mental Notes” Behavioral Finance article for the Market Technician Association’s newsletter (Jan 2004) See abstract below
•“Trading and Biases Don’t Mix”, Futures Magazine (July 2000) See abstract below
This paper discusses several major ideas regarding the research/ strategy due diligence process of a Commodity Trading Advisor. This ideas may be applied to managers of other strategies. The paper was initially published in the September 2013 newsletter of the National Introducing Brokers Association (NIBA).
Click here to read the full paper
Why are Congressional Agricultural Committees Given Oversight of the MF Global Hearings?
This paper details the history of why the Congressional Agricultural committees have regulatory oversight of financial firms and exchanges that trade commodities and of the Commodity Futures Trading Commission.
Click here to read the full paper
Skewing Your Diversification
This paper reviews the performance metrics and use of alternative asset allocations within a traditional asset portfolio. We show most asset classes are not Gaussian (bell-shaped) normal curves as modern portfolio theory assumes returns to be. Instead, the returns are asymmetrical to the right or left causing the employment of higher statistical moments such as skewness and kurtosis to determine risk-adjusted returns. Therefore, the first and second statistical moments (mean and variance) are not sufficient to determine risk-adjusted returns of a portfolio. Utilizing higher moments in conjunction with volatility parsed between upside and downside returns, we demonstrate how managed futures and hedge funds perform individually and simultaneously as diversifiers in a traditional portfolio.
Read Skewing Your Diversification
Introducing Alternative Investments in a Traditional Portfolio: The Case of Commodities, Hedge Funds, and Managed Futures
While recent years have seen an increased demand for commodity investments, especially from institutional investors, there has also been an increase in the development of new commodity indexes. This increased demand
was the motivational factor in asking three very simple, but key questions that led to this chapter: (1) What is the performance result of allocating to commodities as a method of diversification and risk management in a traditional portfolio? (2) Relative to other alternative investments such as hedge funds and managed futures, are commodities more or less efficient as a diversifier with traditional investments? And (3) can commodities complement other alternative investments in the portfolio? While the first question has been discussed by many commentators over the years, we believe that the relationship of commodities to other alternative investments as found in the second and third questions has been less frequently discussed. As alternative investments become more popular, the importance of this discussion increases.
Studying human behavior is not a new concept nor is applying it to the auction markets. If you think about it, economics is a social science and is based on how people behave and make decisions in various situations. If taxes are increased or decreased, interest rates go down, unemployment increases, wages increase, inflation increases or the stock market rallies does this affect your decisions, confidence, expectations or do you feel richer or poorer? The times may change and technology changes but humans are creatures of habit with certain underlying recurring tendencies. These tendencies are reflected in the day-to-day pricing, volume and volatility of the auction markets. Some of these tendencies may create momentums to inflate or deflate financial bubbles
Trading and Biases Don’t Mix
Academics are starting to define what many traders have known all along – human behavior affects markets. Take a look at how natural human biases evolve into common decision-making errors for traders.
Here, we will introduce some of the fundamental concepts of “behavioral finance.” Applications of behavioral finance are not restricted solely to understanding the financial markets at a macro level, but also may be applied to traders, investors, money managers or researchers to recognize and avoid decision-making blind spots involving risk management and market strategies. After all, the financial markets are nothing more than the results of continuous decision-making, based on situations of uncertainty.
Applying psychology in the world of finance, research has focused on fundamental and technical analysis. You can argue technical analysis and/ or quantitative analysis is a method to determine mathematically how people behave given certain situations. Now if you add in the concepts of psychology, the events and tendencies that were once blurred appear clearer. Auction markets are not simply laws of the physical supply and demand of confidence and uncertainty.