Lars Kestner: The Intrepid Quant (EP.29)

Today we interview Lars Kestner, a Managing Director at a European investment bank. Over his 20+ year career on Wall Street, he has led teams that have managed derivative risk across a vast range of market environments. He is the author of Quantitative Trading Strategies, a cutting edge text on systematic trading. Lars designed and employed his first systematic trading system to trade 30yr bond futures before entering college.

We discuss two papers that Lars released on his website, satquant.com, in the last few weeks. His paper “Preferred Portfolios” describes a novel framework for assembling strategies with wildly different characteristics into a coherent and resilient portfolio. We discuss how to sort strategies into Boosters, Defenders, Diversifiers and Selectors based on a novel quantitative method. We then go on to examine the theoretical limits of diversification, and the importance of aligning strategy composition with investor psychology and goals to minimize the potential for abandonment.

We also discuss a brand-new paper called “Replicating CTA Positioning: An improved method”, which proposes a method to peer into current CTA portfolio positioning. This is of value because CTA trend-followers are often the marginal buyer in markets at certain points. The ability to identify concentrated risk positioning and/or potential turning points may offer investors a unique edge.

Lars is clearly passionate about using quantitative methods to maximize investment results in the real world and he offers a variety of valuable nuggets for the perceptive listener. Please enjoy my conversation with Lars Kestner.