Book Review: Efficiently Inefficient by Lasse Heje Pedersen

 

One of the first few books that I read about asset management firms and hedge funds was Inside the Black Box (Review | Amazon) by Rishi Narang. It was a great high level book which covered all the different components of a hedge fund such as market data, backtester, order management system, risk models, portfolio management, transactions cost analysis etc. As I continued to learn more about the industry, I wanted to read a more in-depth book that covered more than just the basics. Efficiently Inefficient by Lasse Pedersen is such a book that covers a variety of topics on hedge funds.

 

The book is divided into four sections:

  1. Active investment
  2. Equity strategies
  3. Asset allocation and Macro strategies
  4. Arbitrage strategies

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Book Review: The WSJ Complete Money and Investing Guidebook

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If you had asked me to discuss bonds on the first day of my first job, I would have probably started talking about ionic or covalent bonds that I had learnt in  my high school chemistry class. I knew close to nothing about finance and financial securities. Derivatives only reminded me of derivation and integration. Options were of no significance and I was clueless about trade and quote data. Now that I look back, I wish someone had given me The WSJ Complete Money and Investing Guidebook (referred to as CM&IG from henceforth) as the first thing to read.

(Side note: I was given a book to read by my boss and it was q for mortals, so I could learn q.)

This ~200 page book is written by Dave Kansas and covers every asset class and major investment vehicles. The book never goes in-depth into any of the topics which I really like. It also assumes that you have barely any knowledge of the financial markets and investing.

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Book Review: Dark Pools by Scott Patterson

Every day, I work on a platform that captures intraday and end-of-day tick data from multiple exchanges. Some of them are very popular like NYSE and NASDAQ but they themselves have several different feeds such as NYSE ARCA, NYSE MKT and NASDAQ TOTALVIEW-ITCH. Then, there are some other ones that are not as popular but still very significant in terms of the daily market volume they handle. For example, BATS has two exchanges BATS BYX and BZX and Direct Edge had Direct EDGA and Direct EDGX.

Before I read Scott Patterson’s Dark Pools, I knew very little about these exchanges and their history. How did they come into existence? What is NYSE Arca? What does Arca stand for? What about NASDAQ TOTALVIEW-ITCH?

When my colleague recommended the book to me, I thought the book would be about, well, dark pools. As in, these mysterious, secretive pools created by companies (mainly investment banks) for trading. They are considered ‘dark’ because they don’t disclose what transactions take place in the pool. Instead the book was about ‘lit pools’ or rather, the quest of a man called, Josh Levine, to make the US exchanges as transparent as possible.

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Book Review: Too Big To Fail by Andrew Ross Sorkin

For anyone working in the financial industry, the events that unfolded in 2007/2008 were nothing but extraordinary. During that time, I had just started my first semester in college and barely knew anything about the financial industry. Every day, I would catch the express train and read about another bank either being acquired or going bankrupt. Soon, it wasn’t just banks in US but globally. After reading about all these banks biting the dust, I would dispose of the newspaper and go back to my day as if nothing had happened.

Things are different now. I have worked at a sell side and a buy side and I can’t afford to not know the details of the financial crisis. I knew bits and pieces after reading so many articles over the years but I needed one detailed source that would walk me through all the major events of the crisis. And this is where Too Big To Fail (TBTF) by Andrew Ross Sorkin comes in. TBTF is an amazing book which covers the financial crisis in extraordinary amount of detail. Sorkin does a wonderful job by giving his readers insights into all the meetings that were held at the Fed, Treasury and investment banks by some very powerful people. Sorkin provides his readers with a great opportunity to know the details of the conference calls that were being held to decide whether or not to takeover a bank, whether or not a company needs to declare bankruptcy before market opens the next day, and whether or not Congress will pass a new bill that can potentially put an end to the crisis.

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Book Review: Flash Boys by Michael Lewis

I remember what a big deal Flash Boys (amazon) was when it was released in 2014. Everyone I knew was talking about it (I was working at an investment bank back then). I am two years late but I finally finished reading it and have to say, it’s a really interesting book.

There is no denying that Michael Lewis (author of Liar’s Poker and The Big Short among others) is probably the best financial author of our times. In this book, he does a great job explaining the inner workings of high frequency trading and how high frequency trading firms have been ‘stealing’ from investors for the last few years. He explains different ways through which high frequency traders make money at the expense of ‘slow’ investors.

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Book Review: The Quants

Regardless of which industry you are employed in, it’s always a good idea to know the background and history of that industry. The Quants by Scott Patterson is one such book which covers the origins of quantitative trading through the lives of some of most famous quant researchers. The book focuses on the story of Ed Thorp, Ken Griffin, Peter Muller and Jim Simons.

The book begins with an introduction of Ed Thorp, a brilliant mathematician who went from using math to win at blackjack to using complicated formulas and pricing techniques to beating the stock market. He is the author of the famous books, Beat the Dealer and Beat the Market. Most of the quants mentioned in the book have had some sort of connection to Ed Thorp whether it be that they knew him personally or were inspired by his books.

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Book Review: Inside the black box

Ever since I made the switch from investment bank to hedge fund, my interest in quantitative trading and hedge funds has grown tremendously. At my new firm, there is barely any discretionary trading (almost none). All positions are based on some quantitative model that has been extensively tested prior to going live.

To get myself familiar with the hedge fund industry, I have started reading some related books. The fact that my commute is more than twice as long as it used to be was also a compelling reason for me to read. I figured I would share my thoughts here in case my readers are looking for some book recommendations.

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