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The Intertek Group |
Exploiting Mean Reversion in the Post Crisis PeriodHalf-day Tutorial Thursday 23 April 2009& One-day Master Class Friday 24 April 2009 |
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Half-day Tutorial : Mean Reversion Revisited in the Post Crisis Period
Introduction Many asset management strategies are based on mean reversion insofar as managers search for mispriced securities under the assumption that they will revert to a fair price. However, when modelling and trying to effectively exploit mean reversion, a number of difficulties arise, essentially related to the estimation of the time horizon of mean reversion. This Tutorial addresses these questions in an intuitive way.
What you will get out of this Tutorial This Tutorial revisits mean reversion in the post-crisis period. It discusses outstanding questions such as:
Ř How will the crisis impact the time horizons of mean reversion? Ř Just what do prices and returns revert to? To each other? To deterministic trends? To common stochastic factors? What is likely to change after the crisis? Ř What is the difference between mean reversion and periodic behaviour? Can periods or time to reversion to the mean be superimposed? Ř Why do prices or returns revert to the mean?
How to exploit mean reversion in this post-crisis period is the topic of the ensuing Master Class.
Tutorial Program Basic questions on mean reversion and cyclical behaviour § Do prices (or returns) revert to the mean? § If random walks revert to their mean, why are they not mean-reverting? § Is mean reversion simply periodic behaviour? § Can mean-reverting behaviour co-exist at multiple superimposed time horizons?
Pitfalls of mean reversion § Can prices revert to the mean if the mean is time-changing? § Do pairs of prices revert to each other? § Do prices revert to deterministic trends? § Ultimately, what do prices (and returns) revert to?
Stylized facts of mean reversion and cyclical behaviour § Is there anything really cyclical in financial markets? The empirical evidence § What is the empirical evidence of mean reversion in stock prices? § How do prices abandon the mean? By momentum?
Mean reversion after the crisis § How will the crisis impact mean reversion? § The long-term view: Hyman Minsky and theories of economic crashes § The medium-term view: business cycles § The short-term view: greed and behavioural biases
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One-day Master Class : Exploiting Mean Reversion in the Post Crisis Period
Introduction Mean reversion is a key strategy for active asset management. The search for deviations from fair pricing is based on the belief that mispriced securities will revert to their fair mean value. But it is difficult to identify just what processes prices revert to. It is also difficult to measure the time scale of mean reversion and separate true mean reversion from random fluctuations. This is especially true in this post-crisis period, with markets having undergone a series of fundamental changes. This Master Class focuses on five major tasks for building strategies based on or including mean reversion:
Ř Identify the factors – common and idiosyncratic – that prices revert to Ř Identify mean reverting and cyclical price processes Ř Measure the time scales of mean reversion and of the cyclical behaviour of prices Ř Separate mean reversion from random fluctuations Ř Measure the risk associated with mean-reversion strategies.
What you will get out of this Master Class This course teaches how to use a broad array of tools for building strategies based on or including mean reversion, including:
Ř Time series analysis in the frequency domain Ř Cointegration analysis at different time scales Ř Dynamic factor models of prices Ř Random matrix theory and random clusters theory.
At the end of the course, participants will receive the Matlab programs used to prepare the illustrations for the course.
This one-day Master Class is preceded by a half-day Tutorial which provides participants with an intuitive discussion of mean reversion, of its many pitfalls, and of the economic rationale behind mean reversion. Master Class Program Mean reversion and periodic behaviour in financial time series § Frequency-domain analysis of time series § Stylized facts of periodic phenomena in financial econometrics § Mean reversion and cyclical behaviour § Estimating the level of meaningful mean reversion
A coarse-grained view of mean reversion: clustering prices § Time series distances and clustering techniques § Clustering of price time series § Random clusters analysis § Extracting meaningful clusters and rejecting random clusters
Cointegration and periodic phenomena § Cointegration models with one or more time scales § Cointegration and cyclical behaviour § Estimating cointegration models § Using random matrix models to measure levels of cointegration
Dynamic factor models of prices § Cointegration, common trends, and dynamic factor models § Dynamic factor model analysis in the frequency domain § Dynamic factor models and mean reversion § Estimating the number of common factors of prices |
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Profile of the Lecturer Sergio Focardi is a partner of The Intertek Group and consults and trains on quantitative methods in equity portfolio management. Sergio is a member of the Editorial Board of the Journal of Portfolio Management and co-author of the CFA Institute’s recent monograph Challenges in Quantitative Equity Management (Fabozzi, Focardi and Jonas, May 2008) as well as the Institute’s Trends in Quantitative Finance (2006) and of the award-winning books Financial Modeling of the Equity Market (Fabozzi, Focardi and Kolm, Wiley, 2006) The Mathematics of Financial Modeling and Investment Management (Focardi and Fabozzi, Wiley, 2004) and, more recently, Financial Econometrics (Rachev, Mittnik, Fabozzi, Focardi and Jasic, Wiley, 2007). |
Practical Information Fee: See below. Includes documentation, programs, refreshments and, on Friday, lunch.
Date: Tutorial Thursday 23 April, 14:00 to 17:30. Master Class Friday, 24 April, 9:00 - 17:00. Registration opens 10 minutes before.
Venue: For both the Tutorial and Master Class: London School of Economics, Main Building, Graham Wallas Room.
Payment: By check or bank transfer. All registrations must be paid in advance of the course. Places cannot be guaranteed until full payment has been received.
Cancellation policy: Should you be unable to attend, a substitute delegate is welcome at no extra charge. Alternatively, we will make prompt refund less a service charge of 20% of the fee for cancellations received in writing (letter or email) no later than 14 days prior to the course. No refund for later cancellations. |
To register, post the below form to: The Intertek Group, 94, rue de Javel, F-75015 Paris, or click here to register online.
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q Tutorial only: Fee €550 (plus 19.6% TVA, France only)
q Master Class only: Fee €995 (plus 19.6% TVA, France only)
q Master Class + Tutorial: Fee €1300 (plus 19.6% TVA, France only)
Please invoice:
q My company
q Me
Payment:
q Bank transfer to The Intertek Group, Société Générale, Paris, IBAN code: FR76 30003 03497 00020061055 68.
q Check payable to The Intertek Group.
Applicants will receive written confirmation and invoice on receipt of the registration form.