[Machine Learning for Trading] {ud501} Lesson 11: 02-01 So you want to be a hedge fund manager? | Lesson 12: 02-02 Market Mechanics

Computational Investing

 

MC2: Computational Investing

Lessons: In this mini-course, we focus on modeling the behavior of stock markets.

1. So you want to be a hedge fund manager?
2. Market mechanics
3. What is a company worth?
4. The Capital Assets Pricing Model (CAPM)
5. How hedge funds use the CAPM
6. Technical Analysis
7. Dealing with data
8. Efficient Markets Hypothesis
9. The Fundamental Law of active portfolio management
10. Portfolio optimization and the efficient frontier

Projects:

1. Build a market simulator
2. Invent your own technical indicator
3. Write a strategy that generates orders

 

 

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 Types of funds

 

 ETF = Exchange-Traded Fund

 

 

 

 Liquidity and capitalization

 

liquidity => the ease with which one can buy or sell shares in a particular holding

large capitalization =>  how much is the company worth = shares that are outstanding × the price of the stock

 

 

 

 

 

 

 

 

Some popular sources for financial and investment data:

• Yahoo Finance
• Google Finance
• Bloomberg

 

ETF => 4 or 3 letters

Mutual fund => 5 letters

 

 

 

 Incentives for fund managers

 

2 and 20 => 2% AUM and 20% profits

 Assets Under Management (AUM) is the total amount of money being managed by the fund.

 

 

 Two and twenty

 

 

 

 

Incentives quiz 

 

 

 

 How funds attract investors

 

 

 

 Hedge fund goals and metrics

 

 

 The computing inside a hedge fund

 

live portfolio == order ==> target portfolio

dont want to do everything at once 

machine leanrnig => forcasting

 

 

 

 

 

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 What is in an order?

 

 Market => not to specify the money

Limit => hand-craft some price limit for trading

 

 

 

 The order book

 

 

 

 

 

 Up or down

If you put in a SELL order (at market value), you will sell the first 100 shares at $99.95, the next 50 at $99.90, and so on.

In case of a BUY order, the market value won't change for the first 1000 shares.

So, depending on your volume of trade, the value of the stock will likely go down.

 

 

 

 

How orders affect the order book 

 

 

 

 

 How orders get to the exchange

 

 

 

 

 How hedge funds exploit market mechanics

 

 

 

 

 Additional order types

 

 

 

 Mechanics of short selling: Entry

 

 

 Short selling

 

The buying occurred after selling, but nonetheless, you sold the stocks for more than you paid - so profit!

 

 

 

 

 

 Mechanics of short selling: Exit

 

 

 

 What can go wrong?