Category Archives: Blog
Market beliefs
Friday was a day to fool others. Every day is a day to fool ourselves. Primed to know The video gives a great example of how knowing what to expect makes the expectation come true. The entire 13.5 minute talk is wonderful, but you can skip to about the 9 minute mark to experience the … Continue reading
Posted in Fund management in general
Tagged efficient market hypothesis, Michael Shermer
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The devil of overfitting
Overfitting is a problem when trying to predict financial returns. Perhaps you’ve heard that before. Some simple examples should clarify what overfitting is — and may surprise you. Polynomials Let’s suppose that the true expected return over a period of time is described by a polynomial. We can easily do this in R. The first … Continue reading
The book of doom
Markets can be disrupted in numerous ways. We should prepare as best we can. Gloom Here are some things that will happen some day: An epidemic threatens millions or billions of people. A solar storm cuts electricity to wide areas for weeks or months, and destroys satellites — including satnav (which have atomic clocks used … Continue reading
Which way is the future?
In the Aymara language the past is in front and the future is behind. It is rare for languages (at least existing ones) to have the metaphor turned this way. But it makes sense to me — maybe it’s the quant in me. We can see the past, and the most recent past is the … Continue reading
Posted in Fund management in general
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Factor models of variance in finance
In “What the hell is a variance matrix?” I talked about the basics of variance matrices and highlighted challenges for estimating them in finance. Here we look more deeply at the most popular estimation technique. Models for variance matrices The types of variance estimates that are used in finance can be classified as: Sample estimate … Continue reading
Posted in R language, Risk
Tagged covariance matrix, factor model, risk model, variance matrix
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Upcoming Events
2011 March 08, 8:00 AM, London EDHEC Risk Institute presents: Raman Uppal How to (or how not to) manage money New approaches for portfolio construction. Admission is free, but registration (soon) is required. More details in the brochure (pdf) 2011 March 08 6PM, London The LondonR meeting. Details at http://www.londonr.org/ 2011 March 09 6:30, New … Continue reading
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
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
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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
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
