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
Portfolio Probing
Low (and high) volatility strategy effects
Posted in Quant finance, R language, Random portfolios
Tagged beta in finance, low volatility investing
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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
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
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
Posted in Quant finance, R language
Tagged Ledoit-Wolf shrinkage, statistical factor model, variance matrix
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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
A minimum variance portfolio in 2011
2011 was a good vintage for minimum variance, at least among stocks in the S&P 500. Previously The post “Realized efficient frontiers” included, of course, a minimum variance portfolio. That portfolio seemed interesting enough to explore some more. “What does ‘passive investing’ really mean” suggests that minimum variance should be considered a form of passive … Continue reading
Realized efficient frontiers
A look at the distortion from predicted to realized. The idea The efficient frontier is a mainstay of academic quant. I’ve made fun of it before. This post explores the efficient frontier in a slightly less snarky fashion. Data The universe is 474 stocks in the S&P 500. The predictions are made using data from … Continue reading
Posted in Quant finance, R language
Tagged efficient frontier, Ledoit-Wolf shrinkage, MACD, S&P 500
7 Comments
What does ‘passive investing’ really mean?
We know the words but what do they mean? Some definitions Here are some definitions of “passive investment management”. Investopedia says: A style of management associated with mutual and exchange-traded funds (ETF) where a fund’s portfolio mirrors a market index. Wikipedia says: Passive management (also called passive investing) is a financial strategy in which an investor (or … Continue reading
Blog aggregators
The Portfolio Probe blog is caught by two blog aggregators. Finance MoneyScience has an aggregation of financial blogs. It now catches over 50 blogs. R R Bloggers captures the Portfolio Probe posts that are in the R Language category. It gets posts from over 300 blogs that talk about R. Figure 1 shows a plot … Continue reading
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