Strategy, Chance and Malkiel’s Monkey - by Daniel McAuley

Believe it or not, the point of this blog post is not about investing. Or Monkeys for that matter. If you’re ok with that, please read on. I spent the first five years of my career in quantitative finance writing algorithms to predict stock prices. Much of that time was spent reading other people’s research to find ideas to incorporate into my models. Most of these papers were technical and pretty dry but once in a while, I’d come across something that was refreshingly straightforward and concise. One such paper was The Surprising Alpha From Malkiel’s Monkey and Upside-Down Strategies (Arnott et al, 2013). The title refers to a remark made by Princeton economics professor and Wealthfront CIO, Burton Malkiel, in his classic 1973 book A Random Walk Down Wall Street, that “a blindfolded monkey throwing darts at the stock listings could select a portfolio that would do just as well as one selected by the experts.” While at the time this was considered blasphemous in finance land, most inve

Believe it or not, the point of this blog post is not about investing. Or Monkeys for that matter. If you’re ok with that, please read on. I spent the first five years of my career in quantitative finance writing algorithms to predict stock prices. Much of that time was spent reading other people’s research to find ideas to incorporate into my models. Most of these papers were technical and pretty dry but once in a while, I’d come across something that was refreshingly straightforward and concise. One such paper was The Surprising Alpha From Malkiel’s Monkey and Upside-Down Strategies (Arnott