Careers Monkeys make better trades than the average fund manager?!

Monkeys make better trades than the average fund manager?!

  • This topic has 7 replies, 7 voices, and was last updated Apr-17 by Lagarta.
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    • Reena
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      Saw this just now at this link

      Copied below for your reference. I thought it was quite interesting, what do you guys think?!

      By Rebecca Burn-Callander Thursday, 04 April 2013

      A recent study by Cass Business School claims that monkeys make better trades than human beings. So much for the financial elite.

      That’s right. A monkey picking investments at random could beat funds tracking the US stock market, according to new research. ‘Nearly every one of the 10 million monkey fund mangers beat the performance of the market cap weighted index,’ says Professor Andrew Clare, co-author of the study.

      Before you start picturing monkeys in three-piece suits hacking away at a computer terminal, it’s worth noting that the primates used in the study by academics at Cass Business School were of the ‘virtual’ variety. To wit, they used a computer to simulate the stock-picking abilities of a monkey and pitted these random choices against a traditional market capitalisation weighted index. Unfortunately for fund managers, the results showed that our hairy genetic relatives won every time.

      However, before fund managers across the Square Mile start throwing themselevs off the Gherkin, the research did also find that certain alternative indices – such as an index where stocks were weighted according to sales – befuddled the monkey magic. The traditional trading models trumped 99% of the monkeys’ randomly constructed ones.

      Still, MT will never think of the phrase ‘monkey business’ in the same way again…

    • Zee Tan
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      Wasn’t there a famous economist that used a gorilla (unlike this article, LITERALLY used an ape) to pick stocks and beat the market?

      Another case I remember was an economist that threw a whole bunch of paper slips from a balcony, and got his toddler daughter to grab them at random.

    • MattyJ
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      The problem here is that the article focuses on return without looking at risk.

    • christine
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      The problem here is that the article focuses on return without looking at risk.

      Spoken like a true CFA-er!

    • Sophie Macon
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      Man, I wanted to find a pet monkey to outsource management of my tiny investments … :(|) :(|) :(|)

    • Snippy
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      You can haz pet monkey.

    • Lagarta
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      The study is actually a real-life version of a study from from Rob Arnott, CFA and Dr. Jason Hsu Ph.D from Research Affiliates (creators of the RAFI indices) and their team. The study includes not only “Malkiel’s Monkey” from the famous book “A Random Walk Down Wall Street” as simulated by a randomizer that selects 30 random stocks from a Russell 1000 universe on an annual basis… But also a comparison of several smart beta strategies and the implications of rebalancing on size and value tilt over time, which led to greater return over the extended investment horizon (1964-2012 in the study). The interesting part is that for a given smart beta strategy, the INVERSE or that strategy ALSO provided higher returns (many times higher risk-adjusted return) than a market-cap weighted benchmark. I actually spoke with Dr. Hsu the week prior to my week off for CFA exams at the CFA Annual Meeting for the local chapter here. Very nice gentleman. I have soft copies (powerpoint and PDF) of both the analytics presentation of the study from Dr. Hsu, as well as the paper itself. If anyone’s interested.

    • Lagarta
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      The official version of this paper will be published in the summer edition of the Journal of Portfolio Management.

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