Study finds market “under-reaction” to Buffett’s 13F filings, proposes trading strategy to exploit it
| Jul 28th, 2010 | Filed under: Academic Research, CAPM / Alpha Theory, Today's Post | By: Alpha Male |
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In an age of mature, highly liquid markets where arbitrageurs exploit ever smaller market inefficiencies, it’s easy to become jaded about the prospects of any manager to produce alpha over the long term. In his (excellent) new book “More Money Than God“, Sebastian Mallaby wonders if Julian Robertson’s 26% annual return between 1980 and 2000 was skill or statistical fluke…
“…Over the 21 calendar years in which Tiger’s investment decisions were controlled by Robertson, the fund was up seventeen of them…Could it be that Robertson was merely lucky? The laws of probability lay down that if one thousand people flip 21 coins, four of them will come up with heads 17 or more times, mimicking Robertson’s performance.”
By illustrating that Robertson’ “Tiger Cubs” also tended to beat the market, Mallaby concludes that Tiger’s fantastic returns were, in all likelihood, alpha.
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