Alternative Market Briefing

French quant house uses data to understand what the market practitioners think, not to understand the market itself

Monday, January 25, 2021

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Julien Messias B. G., Opalesque Geneva:

Quantology Capital Management is a Paris-based hedge fund and specialist of behavioural finance. Its motto is "No beliefs, only processes". It has emerged as one of the best absolute return houses in France in the last couple of years.

Julien Messias, portfolio manager and co-founder, will present in the webinar, Investor Workshop: The Seven Keys to Behavioural Investing, tomorrow at 10 am EST.

Quantology's investment philosophy rests on four pillars, Messias explains, namely, psychology, quantitative finance, systematic investing and collective intelligence.

On the psychology side, the managers believe equity market opportunities are mainly linked to behavioural biases, and that the psychology of investors does not change over time. So exploiting it creates a robust source of alpha.

"We exploit behavioural basis dating back to more than 50 years in the academic literature," he says. "We think that equity markets are highly unpredictable Thus we only work on corporate event-driven opportunities that create robust price momentum."

On the quantitative finance side, the firm has been developing a proprietary quantitative and textual database for the last seven years. The managers are R&D-centric, with a four-people team entirely dedicated to crunching data and testing strategies.

"The real wealth of a quantitative asset management company relies on algorithms, but it relies even more on the databases it has been able to collect and on their 'cleanness'," he explains. Indeed, 50% of the managers' time is dedicated to reading papers or books by psychologists, sociologists and biologists.

The systematic side is applied on the basis that discretionary decisions cost a lot of alpha, as in fast markets rationality disappears behind fear or exuberance. So rule-based strategies are in order.

"Human beings are weak when trying to moderate their emotions," Messias says. "For example, at Quantology Capital we avoid keeping our eyes on screens with data moving up or down. At best, screens with financial data consume too much energy and are huge time-wasters. More realistically, they implicitly encourage traders to act and trade more than they should."

And finally, on the collective intelligence side, the managers think that, when facing randomness, a group of a large number of non-experts tends to outperform a group of self-proclaimed experts. The errors of the ones compensate for the errors of the others, making the collective average the best estimation or choice.

"We have no market conviction, and we really want to avoid having one!" he says. "Don't ask us to predict the level of the S&P at the end of the year. Being agnostic is the best way for us to deliver strong Sharpe and uncorrelated performances and to avoid big trading drama due to personal ego. We use data to try to understand what the market practitioners think, not to try to understand the market itself. It is a huge difference."

Webinar:

Investor Workshop: The seven keys to behavioural investing
- With Julian Robertson, Tiger Management,
- Robert Zuccaro, Target QR,
- Roy Niederhoffer, R.G. Niederhoffer Capital Management,
- and Julien Messias, Quantology Capital Management.
Date: Tuesday, January 26th, 2021 at 10 a.m. EST
Register here for this free webinar: www.opalesque.com/webinar/