Benchmarking M6 competitors: An analysis of financial metrics and discussion of incentives

Abstract

The M6 Competition assessed the performance of competitors using a ranked probability score and an information ratio. While these metrics do well at picking the winners in the competition, crucial questions remain for investors with longer-term incentives. To address these questions, we compare the competitors’ performance with a number of conventional (long-only) and alternative indices using industry-relevant metrics. We apply factor models to measure the competitors’ value-adds above industry-standard benchmarks and find that competitors with more extreme performance are less dependent on the benchmarks. We further introduce two new strategies by picking the competitors with the best (Superstars) and worst (Superlosers) recent performance and show that it is challenging to identify skill amongst investment managers. Finally, we discuss the incentives of winning the competition compared with professional investors, where investors wish to maximize fees over an extended period of time, and provide suggestions for future competition improvements.