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Perfect Asymmetry?
Dalton H Mota:Growing up in the eighties, in a
Dalton H Mota runs Asymmetrica, a research country with tremendous economic volatility, had
consultancy in Brazil. Hes a trader as well advantages. I had a premature nancial education.
as a researcher, and nds time to hold down When I was around 11 years old, Brazil was
experiencing hyperination, like 15% a month.
a professorship too. An engineer by (early)
Amazed by the price increases, I began tracking in my
training, hes consulted by global investors and old Lotus 1-2-3 the prices of the goods I consumed
corporations, and he got his start trading popcorn every week. Tis was my rst quantitative analysis. I
Ifund or institutional
am not registered toasset manager,
manage and
clients right now,
money. I am into production? Tell us about your back-testing methods
also.
also a nance professor at FGV Mba (Getulio Vargas
Foundation) in Rio and Sao Paulo, teaching executive Dalton H Mota:As a small research house, we have a
nance classes since 2005. lot of exibility to do new things, but a really robust
trading process is not easily built. I read a lot and
David Dungay: You started trading very early, observe a lot. You cant forget the fact that a market is
I believe? essentially a human expression. Context is important.
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Dalton H Mota:o my approach, a fundamental given point in time, and this model helps us assess Also, we can develop custom-made quantitative tools I am a small prop trader, nancial researcher and
economic model is an essential component. I think it the more probable market regime. Te pricing of if needed. Non-nancial businesses look for broad consultant, and so far things are under control this
is important to understand why people make money economic risk is mostly a low-frequency process, and nancial and economic perspectives, and specic high- way.
through trading, what kind of risks they are being it is reected in practice in what traders call a bull or tech decision-making tools.
paid to hold, how their strategies t into the great bear market. From a theoretical point of view, it is all David Dungay: Do your models have any self-adaptive
scheme of things. Everything has an economic a repricing of economic risk, even if risk is myopically David Dungay: How automated is your end product? elements to them?
purpose, even if ones not aware. As I see it, theres priced, like it is in bubbles. Can you explain the dierences between automating the
very little true alpha in the global market, only process but not necessarily the order placement? Dalton H Mota:Tey all change with the
multiple betas, most we dont even understand and David Dungay: How does your approach to environment, so in a sense, you can say they self-
cant estimate. quantitative trading systems give you that edge over the Dalton H Mota:We are a quantitative nancial adapt.
eld? Is there more opportunity in the way you analyse research shop, that develops, tests and uses strategies,
And I try to understand the beta I want to be exposed data than perhaps a typical quant would nd? and shares knowledge and analysis with other agents David Dungay: Do you deliberately avoid or minimise
to. For example, when you provide liquidity buying through consulting. We are more onthe intelligence the use of xed parameters in your models?
stocks for low prices at the depths of recessions Dalton H Mota:I dont know, what is a typical side of things.
when fear is tremendous, banks are failing, people quant? I am only concerned with doing the best I can. Dalton H Mota:Yes. We try to use variable
being laid-o, cutting expenses, et cetera you are rading is so dicult that every year you make money A bit of terminology here. I understand automating the parameters or dierent sets of xed parameters
performing the legitimate real economic function of is also a year you learned something about survival process as feeding all the information to the computers when possible. Economic risk modelling uses time-
being an insurer; that is, holding risks other people and adaptation. Our research has a lot of number and generating a signal, a position-sizing, a stop-loss, varying parameters. Short-term trading with futures
are happy (or need ) to transfer to you. For that task crunching, but with a lot of understanding too. a probability distribution of prots, et cetera. As we uses xed parameters, but they are only xed for a
you receive a premium in the form of a huge expected Te quantitative framework structures the thinking, do not trade very high frequencies, nor trade a large given identied market and volatility regime. When
return. the information, the features of behaviour, and number of assets, we dont have the need directly to these change, the model uses a dierent set of xed
generates the signals. But the most important thing is automate the order placement, although we could do so, parameters.
As agents see the situation stabilising and risk fading, a scientic mind, to look at the world in a scientic and probably will do so to some degree in the future, if
stock prices go up, because agents see premiums way, and be always open to the realities of the market. the number of instruments we trade grows. David Dungay: Dalton, thank you very much.
implied into stocks as attractive, buying the assets Human intuition is essential, but betrays you a lot,
and lowering expected returns in the process. If you so quantitative trading keeps noise and emotional
bought at the lows and held, you pocketed the bias out.
change in prices that resulted from the change
in expected returns and perceived risk. If David Dungay:What is a typical consulting
you traded in the months between the project for you?
low and the recovery, economic risk
awareness would have kept you on the Dalton H Mota:We are approached by
right side of the trend, and your quant global investors and corporations. o
model would have behaved according to the rst group, we extend some of the
this market regime. proprietary quantitative research and
economic analysis we do for ourselves.
So, we map a few economic and market
indicators to estimate
the broad economic
expectations more likely
being priced into asset
risk premiums at a
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