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Alternative Market Briefing

As volatility ramps up, one firm takes advantage of investor bias

Friday, May 27, 2022

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Roy Niederhoffer
Is there an element of predictability to the current market volatility? Roy Niederhoffer founder of New York-based R.G. Niederhoffer Capital Management argues that there is. Even if it's difficult to guess what the market is going to do next, investors tend to have a set of cognitive biases that makes market reaction to change relatively predictable. These biases are most pronounced during times of market stress.

That idea forms the basis of Niederhoffer's Smart Alpha Program. Niederhoffer's approach is designed to look for situations where behavioral bias is likely to work against investors and capture the opportunity embedded in their miscalculations. RGN Smart Alpha takes advantage of short-duration realized volatility by trading momentum and mean reversion strategies against the cognitive biases the program identifies in the market. RGN Smart Alpha uses approximately 60 individual trading rules to capture market trends and identify trading signals.

The program only invests in Basel III low-risk weighted securities in the fixed income and foreign exchange markets. The strategy has an average trading hold period of 1.5 days to take advantage of short-term volatility.

Niederhoffer relies on in-house technology to support the modeling and algorithms necessary to run a program like RGN Smart Alpha. The firm has refined its models since its founding in 1993, to keep pace with shifts in the market and advancements in technology.

Niederhoffer argues that diversifying strategies like RGN Smart Alpha are beneficial during times of market volatility because investor bias provides a unique opportunity set that tends to be uncorrelated from the broader market. Diversifying strategies can also mitigate losses within a broader portfolio.

Roy Niederhoffer will present the RGN Smart Alpha program in detail at the upcoming Small Managers - Big Alpha webinar.


Upcoming webinar:

Small Managers - BIG ALPHA

Episode 8 of this groundbreaking webinar series presents another carefully screened panel of investment managers. In one hour, you'll meet them all, get to know their top quartile strategies, and since this is an interactive session, you will be able to ask your questions.

Craig Reeves, Prestige Funds
• Roy Niederhoffer, RG Niederhoffer Capital Management
Neal Berger, Eagle's View Asset Management
• Rajat Suri, Helm Investment Partners

When: Wednesday, June 8th at 11am ET / 4pm UK time / 5pm CET

Free registration: www.opalesque.com/webinar/


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