Publications: Gavekal Portfolio Solutions
What Antifragility Means
‘Antifragility Revisited’ is a series of publications on the financial, physical, and socio-political concept of antifragility, invented and promoted by Professor Nicolas Nassim Taleb.
Part I introduces the concept and its potentially revolutionary applications in finance. These include the identification of fragile and antifragile assets, the classification of companies by level of market fragility, the measure of critical volatilities and the construction of investment portfolios targeting long-term robustness.
A Simple Rule - PART III - Risk Remuneration
In this publication, we analyse the competition between major economic zones on risk remuneration. Risk remuneration is the excess return of risk assets above cash rates. Similarly to cash remuneration, presented in Part II, flexible investors can generate significant alpha by dynamically allocating risks to the leading zones.
Part III shows evidence of risk allocation opportunities on equity indices, thereby confirming the arbitrage principle. It temporarily closes a first series of three letters on the global competition across zones to attract world savings, and the benefit that a global and flexible investor can take from it.
A Simple Rule - PART II - Cash Remuneration
Monetary zones compete to attract and safeguard excess savings denominated in their own currency. From an investor’s standpoint, the attractiveness of a currency resides in the total remuneration proposed by its monetary zone, i.e. the interest payments on cash deposits and the appreciation or depreciation of the currency vis-à-vis other competitors.
We analyse below this competition over time and show that currency remunerations, or ranking across zones, reveal the ‘Best of Breed’. A simple rule to allocate cash, based on trusting currency leaders over currency losers, generates significant alpha over time.
A Simple Rule - PART I - Arbitrage Principle
There exists a theoretical trade-off between two types of remuneration: cash and risk. An economic and monetary zone cannot simultaneously favour both ‘the rentier’ and ‘the entrepreneur’. However, we believe that a flexible investor can in fact benefit from such a situation. By investing their cash into the best cash-remunerating zone and their risk into the best risk-remunerating zone, the investor can do what has rarely been done before; reap the benefits of both.
The presentation of our model is split into three parts: (I) Arbitrage Principle, (II) Cash Remuneration, (III) Risk Remuneration. Through our new method of analysing global investment portfolios, our model devises a simple rule that leads to the generation of significant long-term alpha
Publications: Quant Corner Notes