Medallion Fund: The Ultimate Counterexample?

Abstract

Performance of Renaissance Technologies’ Medallion fund provides the ultimate counterexample to the hypothesis of market efficiency. Over the period from the start of trading in 1988 to 2018, $100 invested in Medallion would have grown to $398.7 million, representing a compound return of 63.3%. Returns of this magnitude over such an extended period far outstrip anything reported in the academic literature. Furthermore, during the entire 31-year period, Medallion never had a negative return despite the dot.com crash and the financial crisis. Despite this remarkable performance, the fund’s market beta and factor loadings were all negative, so Medallion’s performance cannot be interpreted as a premium for risk bearing. To date, there is no adequate rational market explanation for this performance.

TOPICS: Portfolio management/multi-asset allocation, performance measurement

Key Findings

• • The performance of Medallion Fund was unprecedented over the 31 years from January 1998 to December 2018.

• • The performance results cannot be rationalized as a risk premium.

• • Medallion represents the ultimate challenge to the efficient market hypothesis.