Wednesday, February 13, 2013


Drawdown-based Stop-outs and the ‘Triple Penance’ Rule

By David H. Bailey, Complex Systems Group Leader, Lawrence Berkeley National Laboratory; and Marcos López de Prado, Head of Global Quantitative Research, Tudor Investment Corporation and Research Affiliate, Lawrence Berkeley National Laboratory

The authors introduce a new drawdown concept called Penance, which measures how long it takes to recover from the maximum drawdown, as a multiple of the time it took to reach the bottom. Their study, “Drawdown-based Stop-outs and the ‘Triple Penance’ Rule” finds that as a result of evaluating hedge fund performance through traditional metrics, such as the Sharpe ratio, some hedge funds may be firing more than three times the number of skillful portfolio managers, compared to the number they were willing to accept. The authors hope to change the traditional method of evaluating hedge fund performance by allowing serial correlation to be taken into account in risk management, portfolio optimization and capital allocation applications.

Download the full article here.

From the February 2013 issue of Barclay's Insider Report. Accredited investors can subscribe to the full newsletter for free.

Labels: ,

<< Home

Copyright © 2010 by Barclay Hedge

This page is powered by Blogger. Isn't yours? Subscribe by RSS Subscribe by Atom

Subscribe to Posts [Atom]