Monthly Archives: March 2012

Maximum weight of the low vol cohorts

Maximum weight was constrained to 4% at the start of 2007, how does that grow when unhindered? Previously “Low (and high) volatility strategy effects” created 6 sets of random portfolios as of 2007 and showed their performance up to about a month ago. “Rebalancing the low vol cohorts” looked at how much turnover was required … Continue reading

Posted in Quant finance, Random portfolios | 1 Comment

Rebalancing the low vol cohorts

How much turnover is required to get portfolios back to their constraints? Previously “Low (and high) volatility strategy effects” created 6 sets of random portfolios as of 2007 and showed their performance up to about a month ago.  This post explores how much turnover it takes to get the portfolios to obey their constraints at … Continue reading

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Beta is not volatility

The missing link between beta and volatility is correlation. Previously “4 and a half myths about beta in finance” attempted to dislodge several myths about beta, including that beta is about volatility. “Low (and high) volatility strategy effects” showed a plot of beta versus volatility for stocks in the S&P 500 for estimates from 2006.  … Continue reading

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Low (and high) volatility strategy effects

Does minimum variance act differently from low volatility?  Do either of them act like low beta?  What about high volatility versus high beta? Inspiration Falkenblog had a post investigating differences in results when using different strategies for low volatility investing.  Here we look not at a single portfolio of a given strategy over time, but … Continue reading

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Review of “The Origin of Financial Crises” by George Cooper

The subtitle is “Central banks, credit bubbles and the efficient market fallacy”. Executive summary This is much too important of a book to remain as obscure as it is.  Besides, it is quite a fun read. It talks about two subjects: Why markets for goods and services tend toward equilibrium but financial markets do not. … Continue reading

Posted in Book review, Economics, R language | Tagged , | 4 Comments

The Battle of Fundamental Index

The pro and con of fundamental indexing. Last Tuesday the London Quant Group sponsored a boxing match between forces for and against fundamental indexing.  Adam Olive was in the pro corner.  Ed Fishwick was in the con corner. Round 1: FI comes out swinging Fundamental indexing is an alternative to market capitalization indexing. The optimal … Continue reading

Posted in Fund management in general | Tagged , , | 2 Comments

The quality of variance matrix estimation

A bit of testing of the estimation of the variance matrix for S&P 500 stocks in 2011. Previously There was a plot in “Realized efficient frontiers” showing the realized volatility in 2011 versus a prediction of volatility at the beginning of the year for a set of random portfolios.  A reader commented to me privately … Continue reading

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The shadows and light of models

How wide is the darkness? Uses of models The main way models are used is to: shine light on the “truth” We create and use a model to learn how some part of the world works. But there is a another use of models that is unfortunately rare — a use that should be common … Continue reading

Posted in Quant finance, R language | Tagged | 5 Comments

Popular posts 2012 February

Most popular posts in 2012 February What does ‘passive investing’ really mean The BurStFin R package The distribution of financial returns made simple The top 7 portfolio optimization problems A tale of two returns (posted in 2010) The US market will absolutely positively definitely go up in 2012 A slice of S&P 500 kurtosis history … Continue reading

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