Monthly Archives: February 2011

An investment lottery

Can fund managers capture money that is now gambled away? Investing versus gambling A clean, though imperfect, distinction between investing and gambling is: if the expected return is positive, it is investing if the expected return is negative, it is gambling Other views on gambling versus investing can be found here and here. An investing … Continue reading

Posted in Fund management in general | Tagged , | 3 Comments

Inflexible regime, inflexible prices

There is a deep connection between political mechanisms and economic mechanisms, at least according to Ajay Shah. Price flexibility Ajay Shah has a post called Jittery regimes fix prices. It is well worth reading the whole piece (which isn’t very long anyway).  Here’s an excerpt: Flexible prices are constantly disruptive. Every day, there are a … Continue reading

Posted in Economics, Fund management in general, Quant finance | 1 Comment

Thalesians: events and videos

The Thalesians is a group that has been going for a few years in London, and is just about to have its first event in New York.  It holds events on various topics that are generally not far from quantitative finance. Events The first New York talk will be held Wednesday 2011 February 23.  Gerald … Continue reading

Posted in Events, Quant finance | Tagged | 1 Comment

Who are the innocent bystanders?

High volatility stocks are, in general, nonsensical.  Who’s to blame? The high vol gamble Theory says that investors demand higher returns for higher volatility assets.  Reality says that the most volatile stocks have the lowest expected returns.  See, for example, The volatility puzzle solved? — specifically Figure 2. That this particular theory doesn’t hold means … Continue reading

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

A tangle of luck and skill

Some concrete steps for discerning skill from luck. The Harvard Business Review published a guest blog post by Michael Mauboussin called Untangling Skill and Luck. That post is really a brief introduction to a longer piece which is also called Untangling Skill and Luck. The punchline is that there are ways of estimating the proportion … Continue reading

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Quantitative finance now on Stack Exchange

The site is A new area has emerged in Stack Exchange for Quantitative Finance (in trying to spell that I now know why it is usually just “quant”).  It has been in private beta for a few weeks and has become public in the last few days. Already it has reasonable traffic.  I predict … Continue reading

Posted in Quant finance | 1 Comment

4 and a half myths about beta in finance

Much of what has been said and thought about beta in finance is untrue. Myth 1: beta is about volatility This myth is pervasive. Beta is associated with the stock’s volatility but there is more involved.  Beta is the ratio of the volatility of the stock to the volatility of the market times the correlation … Continue reading

Posted in Quant finance, R language | Tagged , , , | 12 Comments

Dicing with the market

How to visualize luck when looking for skill. Quantitative Finance just published the paper Dicing with the market: randomized procedures for evaluation of mutual funds by Francesco Lisi.  Here is the working paper version. This paper explains one way of using random portfolios to do performance measurement of investment funds.  It includes performance measures on … Continue reading

Posted in Performance, Random portfolios | Tagged , | 1 Comment

The Super Bowl Indicator

The Super Bowl will take place on Sunday. This is the final game for American Football (if you have to ask, then: “No, not real football”). Not only is it a highlight in sports, it is also a financial highlight as it determines the fate of the US stock market for the year. You can … Continue reading

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

The mean reversion of Groundhog Day

February 2nd is Groundhog Day.  If Punxsutawney Phil sees his shadow, then he goes back into his burrow and hibernates for six more weeks.  Otherwise he predicts an early spring. It is really a mean reversion idea — current good weather means bad weather later, and vice versa. The other Groundhog Day Most people outside … Continue reading

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