Volatility expert wins NAAIM research award

Research paper details several methods for predicting volatility to specify levels of leverage that can increase performance with less risk
MAY 05, 2010
Market volatility was at the center of this year’s Wagner Award for Advancements in Active Investment Management. The award, presented today in Orlando, Fla., as part of the National Association of Active Investment Managers’ annual gathering, recognizes top research and analysis related to active investment strategies. This year’s winner, Tony Cooper of Auckland, New Zealand, developed a trading system that uses market volatility as a tool for determining how much leverage to use in a portfolio. “Volatility is predictable, but performance is not predictable,” said Mr. Cooper, managing director of Double-Digit Numerics Ltd., a hedge fund consulting firm. Under the premise that volatility is easier to predict than price, Mr. Cooper, in a recent research paper, details several methods for predicting volatility to specify levels of leverage that can increase performance with less risk. The basic objective is to increase leverage when volatility is lower and decrease it when volatility is rising. “Volatility has long been an important element of market analysis,” said William Barack, president of Barack Capital Management and a member of the judging panel. “Rising volatility is typically a sign of uncertainty and often precedes market declines, while low volatility tends to occur in rising markets,” Mr. Barack added. Mr. Cooper’s analysis includes a measurement of how much daily volatility varies. “To predict tomorrow’s volatility, just look at today’s volatility,” he said. Mr. Cooper, 52, spent five months developing the strategy and writing the research paper, which beat out nearly two dozen other entries in the second annual contest. Mr. Cooper said he is hoping the exchange-traded-fund industry will take his research and apply it to a specific investment product. “I’m hoping the ETF providers will create a family of targeted-volatility ETFs, where the leverage is adjusted every day to meet those targets,” he said. Mr. Cooper is scheduled to present details of his research Tuesday during a keynote luncheon presentation at the conference, which runs through Wednesday. Regarding the $10,000 prize for winning the contest, Mr. Cooper said he would like to invest it in a targeted-volatility ETF as soon as one is created.

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