“Chimp” algorithm: Why random portfolios appear to outperform benchmarks.

The Surprising Alpha from Malkiel’s Monkey

I had a quick read through the article referenced above.Which is interesting and well researched and written

As far as I can see it does NOT trash such alternative passive index strategies per se. To do so would be truly stupid if empirically they work (in back testing at least!).

All the paper is saying is that such strategies work for reasons different to those the “inventors” assumed.

Namely small cap and value tilts.

I do find such semi academic articles tend to be sniffy and condescending

If the system works trade it. I guess that is one of the delights of the hedge fund world. It tends to stick two fingers up at dull, stifling convention.

I have nothing against rigorous research and have always tried to make my own research as unbiased and thorough as possible. But if something works, if a trading scheme is not curve fit who care if the reason it works is because it favours value stocks, or growth stocks or value stocks?

I am no admirer of the sort of loud mouthed self congratulatory article on the referenced website in the Quantopian thread where I can across the Malkiel’s Monkey Paper. However stock picking is clearly a waste of time and market cap weighted indices obviously have their limitations as well as their part to play.

So what I say is “good on you Edward Park”. I love these sort of experiments and have carried many out myself on random portfolios which include de-listed stocks.

I’m only trading my one model TAA1 at the moment but I expect to add a few such as the random approach to my portfolio of systems. To hell with convention and clients and talking heads. No wonder the “hedgies” invented themselves and their way of life and business!

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