27.10.2011

Most investors suffer from information overload and noise distraction, argues IAN LANCASTER who advocates the use of quantitative techniques to efficiently allocate capital within a Shariah compliant equity portfolio.

There has certainly been a great deal of ‘noise’ in equity markets in recent months. Equity price volatility has increased significantly as macro-economic uncertainty has risen, with the VIX ‘fear gauge’ Index hitting the levels of March 2009. Given the systemic risks involved, it is understandable that investors have agonized over the likelihood of a political resolution to the sovereign debt crisis in Europe, and whether the US is heading for another recession. However markets often behave irrationally, placing far too much emphasis on recent information, resulting in large daily movements amplified by trend followers. The resulting noise not only makes it difficult to assess underlying market direction, but also offers opportunities for the more rational investor....Read more...