1st Edition

Your Essential Guide to Quantitative Hedge Fund Investing

By Marat Molyboga, Larry E. Swedroe Copyright 2023
    316 Pages 6 B/W Illustrations
    by Chapman & Hall

    316 Pages 6 B/W Illustrations
    by Chapman & Hall

    316 Pages 6 B/W Illustrations
    by Chapman & Hall

    Your Essential Guide to Quantitative Hedge Fund Investing provides a conceptual framework for understanding effective hedge fund investment strategies. The book offers a mathematically rigorous exploration of different topics, framed in an easy to digest set of examples and analogies, including stories from some legendary hedge fund investors. Readers will be guided from the historical to the cutting edge, while building a framework of understanding that encompasses it all.


    • Filled with novel examples and analogies from within and beyond the world of finance
    • Suitable for practitioners and graduate-level students with a passion for understanding the complexities that lie behind the raw mechanics of quantitative hedge fund investment
    • A unique insight from an author with experience of both the practical and academic spheres.

    1. Introduction To Hedge Funds. 2. Hedge Fund Research And Data. 3. Manager Selection and Hedge Fund Factors. 4. Performance Persistence. 5. From Mean-Variance to Risk Parity. 6. Advanced Portfolio Construction. 7. Expert Hedge Fund Managers. 8. Expert Hedge Fund Investors. 9. Inclusion and Diversity. 10. Conclusion.


    Dr Marat Molyboga is the Chief Risk Officer and Director of Research at Efficient Capital Management, where he helps shape strategic priorities as a member of the Leadership Team. He began his career at Efficient in 2001 as a Research Analyst, working on fund selection and portfolio construction algorithms. Later, he spent several years developing and managing intraday trading strategies for a firm subsidiary before assuming his current risk management and research roles. His expertise is in hedge fund performance evaluation and portfolio construction, specializing in practical applications of rigorous academic research.

    Dr Molyboga graduated with high honors from Moscow State University with a Master’s in Financial Mathematics and honors from the University of Chicago's Booth School of Business with an MBA in Finance, Economics, and Strategic Management. He earned a Ph.D. in Finance from EDHEC Business School. Dr Molyboga is a Chartered Financial Analyst (CFA) and an Adjunct Professor at the Illinois Institute of Technology Stuart School of Business, where he teaches empirical finance techniques to Ph.D. students.

    His research papers have been published in many academic and practitioner-oriented journals, such as the Journal of Portfolio Management, Journal of Alternative Investments, Journal of Futures Markets, and Journal of Financial Data Science. He also enjoys presenting his work at various academic and industry conferences.

    Larry E. Swedroe is the head of Financial and Economic Research, Buckingham Wealth Partners. In his role as chief research officer and as a member of the firm’s Investment Policy Committee, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations. He has had his own articles published in the Journal of Accountancy, Journal of Investing, AAII Journal, Personal Financial Planning Monthly, the Journal of Portfolio Management, and Wealth Management.

    Since joining the firm in 1996, Larry Swedroe has spent his time, talent and energy educating investors on the benefits of evidence-based investing with. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives, The Evidence Based Investor, and Alpha Architect.

    Larry was also among the first authors to publish a book that explained the science of investing in layman’s terms, "The Only Guide to a Winning Investment Strategy You’ll Ever Need." The second edition was published in 2005. He has since (co)-authored 16 more books including, "What Wall Street Doesn’t Want You to Know" (2001), "Rational Investing in Irrational Times" (2002), "The Successful Investor Today" (2003), "Wise Investing Made Simple" (2007), "Wise Investing Made Simpler" (2010), "The Quest for Alpha" (2011) and "Think, Act, and Invest Like Warren Buffett" (2012).

    This wise and lucid treatise explaining the promise and the hazards of alternative hedge fund strategies should be required reading for both investors and students of financial engineering.

    -Burton G. Malkiel, author of A Random Walk Down Wall Street, 50th anniversary edition.

    The book covers both the classical works and recent advances in quantitative aspects of hedge fund investing. Broad in scope and commendable in erudition, the book easily earns a prime spot on hedge fund allocator’s proverbial book shelf. Particular focus is rightfully paid to the portfolio construction aspects of hedge fund investing, alpha/beta separation of hedge fund returns, and persistence of those returns more generally. Personal stories covered among other material are a nice touch and make the whole book even more fun to read. In all, a welcome and long overdue addition to the professional literature on this thorny but relevant subject matter.

    -Alexander Rudin, Ph.D., Global Head of Multi-Asset and Fixed Income Research as State Street Global Advisors. 

    Molyboga and Swedroe have produced a comprehensive guide to the theory and practice of hedge fund investing. From strategy and manager selection to portfolio construction, the book offers rigorous and pragmatic advice. I wish this book existed when I was starting out.

    -Tobias Carlisle, Managing Director, Acquirers Funds. 

    This book covers a vast range, from classic topics of hedge fund performance sources, biases, and persistence, to smartly constructing hedge fund portfolios, to newer topics like diversity. Wonderful practitioner and expert interviews bring further flesh and color to the subject. I wish I had read this before I wrote my own books.

    -Antti Ilmanen, Principal, AQR Capital.

    Molyboga and Swedroe provide a comprehensive and insightful guide to quantitative investing in hedge funds. They explain carefully and lucidly all the technical details of this important area of investing. For each topic, they provide an excellent account of both the empirical evidence and the theory, based on results from the most recent academic research. This book provides the definitive cutting-edge guide for graduate students and investment professionals who wish to acquire a broader and deeper understanding of hedge fund investing. If you are going to read one book on hedge funds, you should read this one.

    -Raman Uppal, Professor of Finance, EDHEC Business School.

    The title doesn’t do this book justice. It’s about much more than quantitative hedge fund investing. It also discusses general manager and factor selection, whether performance persists, risk parity vs. traditional investing, even cutting edge topics like machine learning and important less quantitative topics like inclusion and diversity. In particular the interview section of the book was exceptionally informative save the one negative being that I was not an interviewee :) We will correct that in the next edition. The authors tackle this wide range of topics with their typical thoroughness and insight and I recommend this book whole-heartily if you’re interested in the titled subject or just good investing in general.

    -Cliff Asness, Managing and Founding Principal, AQR Capital Management.

    A very thorough guide on hedge funds from a refreshing allocator’s perspective. Unlike the many books on hedge funds that take the fund manager’s point of view and inevitably fall short on details for obvious secrecy reasons, this book gets deep into the data and modeling. The allocator’s perspective, and this book in particular, would be my choice for a business school course on hedge funds.

    -Michael W. Brandt, Kalman J. Cohen Professor of Finance, Fuqua School of Business, Duke University.

    Finally, a comprehensive guidebook to systematic hedge fund investing that bridges the gap between academic research and the real-world practice of asset management. The authors do a great job de-mystifying popular trading strategies and the statistical tools behind them, zeroing in on the key problem: distinguishing investing skill from luck is fiendishly hard. The "human" side of the book in the form of interviews with practitioners exhibiting a wide diversity of backgrounds and experiences brings a refreshing new perspective on the opaque world of hedge fund investing.

    -Nikolai Roussanov, Moise Y. Safra Professor of Finance, Wharton Business School, University of Pennsylvania.

    I learned a lot from this book. There are cautionary histories of hedge funds’ successes and failures, an impressively thorough review of the research on hedge fund performance, and engaging personal stories of hedge fund managers. Each chapter is followed by succinct "key takeaways." My grand takeaway is that investing in hedge funds is complex enough that I would not attempt to find a select set of them for my portfolio without the help of a wise, knowledgeable, and trusted advisor.

    -Edward Tower, Professor of Economics, Duke University.

    Hedge funds benefit from a mystique supported by perceptions of exclusivity and outsize performance available only to institutions and wealthy investors. This book takes a much-needed clear eyed approach to evaluating the portfolio value of hedge funds. Backed by dozens of academic studies, the authors provide a realistic evaluation of the headwinds faced by hedge funds hoping to provide value in a market filled with smart traders and barriers to persistence. I know of no other book that provides an equally exhaustive evaluation of the methodologies used to evaluate whether hedge funds are able to improve performance, and whether skilled advisors can select managers that provide value.

    -Michael Finke, Frank M. Engle Chair of Economic Security at The American College.

    As someone who teaches quantitative investing, this book is a wonderful resource for practical insight on quantitative methods in investing. Covering a wide range of topics that include portfolio construction, performance evaluation (and its biases), discretionary versus systematic funds, and newer topics on diversity, this book offers a wealth of information and tools for applying quant methods in finance. A wonderful resource for students and practitioners.

    -Toby Moskowitz, Dean Takahashi Professor of Finance at Yale University and AQR Principal.

    Well-researched and easy to read, this book is a must-read for all investors considering alternative investments. Grab a copy!

    -Wesley R. Gray, PhD, CEO of Alpha Architect.