Introduction: About Myself

This may have been true in the early days of the web, but these days people are smarter and more cynical. These days, people assume that you’re a dog unless you can prove otherwise. Much as I would like the ideas on this blog to stand on their own, I fear I will have to provide some shamelessly self-promotional biographical detail. So, a few words about myself:

I joined a hedge fund at the age of 21. By 23 I was a junior trader; by 25 I had my own portfolio; by 27 I was a millionaire; and by 30 I had retired. I closed out the last of my positions on my 30th birthday and walked away with my winnings intact. A large chunk of my success can be put down to simply being in the right place at the right time, but I like to think that skill played a small part too.

This was a few years ago. Since then, I have traveled the world, played a great deal of tennis, and become a father. I still follow the markets constantly, partly so that I can invest my own money productively, but mostly because I’m addicted. To keep myself busy, I write this and two other blogs; I run managed accounts for a few close friends and family; I consult for a variety of industry players; and I’m a principal at a small private-equity fund.

And about my professional expertise:

I cut my teeth in fixed income arbitrage, a field in which I consider myself an expert. I have traded relative value as well as directionally, in rates, currencies and commodities, and I think I am reasonably competent at all of these. My specialty is the design and analysis of quantitative trading strategies, with a strong minor in global macro and thematic investing.

I am not an equity trader and claim no expertise in stock-picking.

Of course, gentle reader, you have no way to tell that the above prose was not, in fact, written by a dog.

Introduction: The Meta Finance Blog

Welcome to the Meta Finance Blog. As the name suggests, this is a blog about what lies beneath the edifice of modern finance. In this blog, instead of addressing the what and how, or even the when and how much, I will focus on the why of financial markets.

The bedrock of any study of finance has to be individual transactions (‘trades’), which suggests the first ‘why’:

Why are certain traders / trades / trading styles more successful than others?

Under this heading I will talk about competing trading philosophies; the design and analysis of trading strategies; various sources of trading returns; the concept of premium capture (especially risk premium); the measurement of trading performance; arbitrage, its implications and its limitations; modeling and meta-modeling; market-making and price-taking; risk management schemes; and so on.

Of course, traders don’t operate in a vacuum; they are typically funded by (and hence beholden to) institutions. This brings us to the second ‘why’:

Why do institutions look the way they do?

Under this heading I will talk about institutional structures and how they have evolved; Red-Queen patterns and races to the bottom; principal-agent issues; incentive schemes and their consequences; regulatory and jurisdictional arbitrage; politics and voting models; and so on.

I will also talk a great deal about institutional relationships: the relationships between Wall Street and Main Street; between regulators and the regulated; between investors and asset managers; between price-takers and market-makers; and so on.

The complex interactions between various institutions (mediated by individual traders, risk managers, brokers, regulators, investors and others) give rise to the glorious mess that we call the market. So, our third ‘why’:

Why do markets behave the way they do?

Under this heading I will talk about the efficient markets hypothesis and its many subtleties; game theory; expectations; positive and negative feedback; stable and unstable equilibria; regime changes and structural breaks; correlations, distributions and extreme events; and so on.

I will also have plenty to say about behavioral finance; the limits of rationality; and the importance of incentives and psychology in determining market behavior.

Markets are the barometer of the economy, hence our fourth ‘why’:

Why do economies behave the way they do?

Under this heading I will talk mainly about the interplay of micro and macro economics: specifically, the micro foundations of macro moves, and the macro currents driving micro behavior. As above, questions of incentives and psychology will dominate.

I will also discuss, but only in passing, some of the usual macro suspects: growth, inflation and unemployment; exchange and interest rates; monetary and fiscal policy; Keynesian, neoclassical and monetarist models; stickiness, rational expectations, time-consistency; positive and negative shocks; and so on.

This introductory post would not be complete without one last ‘why’:

Why are you writing this blog?

I find markets endlessly fascinating. Unfortunately, I cannot say the same for the vast majority of market commentary. Much of the analysis I encounter tends to be superficial, ephemeral or just plain uninteresting; this is because most analysis concerns itself with mere details, without investigating the ‘deep structure’ underlying financial markets. It is this deep structure that dictates why those details should be the way they are, and it is this deep structure that I propose to investigate in this blog.

Happy Reading!