Category Archives: Blog
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
Quantitative finance now on Stack Exchange
The site is http://quant.stackexchange.com/ 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 beta in finance, Capital Asset Pricing Model, CAPM, statistical bootstrap
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 investment performance measurement, luck versus skill
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
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
Beware Mr Market
Thinking of the market as having a personality can be fun and educational. But it has a dark side as well. Benjamin Graham The idea of Mr Market was created by Benjamin Graham as a way of conveying the wisdom of fundamental analysis. Graham’s intentions were to make people act more rationally. Ironically, thinking of … Continue reading
Financial instability
Instability in the economy seems to be the zeitgeist of the week. Counter-intuitives Science Daily has a story on a mathematical model of extinction. Apparently a key finding is that the most effective interventions in the model when a species declines are counter-intuitive. An analogy: brakes don’t stop you when you are driving in snow, … Continue reading
A field guide to market participants
Fundamental Hawk (perusii balancesheetus) Very discriminating in diet. Often seen scratching in the undergrowth. Subsists on irrationality, short-lived variety only. Macro Harrier (exsanguinus economicus) Flies very high. Reports of bombardier behavior (unsubstantiated). Common Quant (quantus quantus) Flies backwards looking in mirror. Seldom seen without a factor model. High Frequency Quant (quantus nanosecondii) Flies backwards really, … Continue reading
Review of “R Graphs Cookbook” by Hrishi Mittal
Executive summary: Extremely useful for new users, informative to even quite seasoned users. Refereeing Once upon a time a publisher asked if I would referee a book (unspecified) about R. In an instance that can only be described as psychotic I said yes. That bit of insanity turned out to be a good thing. I … Continue reading
